Falling into the Doughnut Hole

Abstract

The Medicare Part D prescription drug benefit may facilitate provision of medications by subsidizing drug costs. However, beneficiaries with higher drug utilization may face higher out-of-pocket (OOP) costs under the benefit's "doughnut hole" provisions that substantially increase beneficiary cost-sharing. The Medicare Current Beneficiary Survey Cost and Use data for 1997 through 2001 were used to estimate the impact of the standard Part D benefit on drug expenditures. The sample consisted of adults who were not dually enrolled in Medicaid (41,617 without ESRD, 256 with ESRD). Outcomes were annual total and OOP drug spending projected to 2006, as well as estimates of individual spending changes under Part D. In 2006, ESRD beneficiaries will have mean annual total and OOP expenditures that are approximately twice that of their Medicare peers. The overall impact of Part D on OOP expenditures is similar among all beneficiaries; however, many individuals with employer-sponsored coverage and those with higher costs (especially those with ESRD) may face cost increases with significant monthly variability as a result of reaching the "doughnut hole," a no-coverage gap in the standard benefit. Therefore, ESRD beneficiaries face substantial total and OOP annual expenditures for medications, causing most to reach the Part D benefit gap. Higher OOP costs may lead to reductions in spending and medication use with subsequent treatment gaps that may lead to increased use of medical services. As the new legislation takes effect, policy makers who are considering modifications in the program may benefit from further research to monitor patterns and gaps in coverage, medication use and spending, and hospitalization and survival trends.