Back Page: The Incredible Shrinking Donut Hole

The number of Medicare Part D subscribers who fall into the coverage gap looks smaller than was feared. Will that fact fall into the gap inside the Beltway?
May 31, 2007



Medicare Part D's infamous donut hole—the gap in coverage where subscribers have to shell out full drug costs—sparked a national debate long before the first poor, frail, creaky (or so you imagine) senior citizen stumbled into it. Critics of Part D—mostly Democrats, plus advocates ranging from AARP to the Gray Panthers—argue that government price negotiations, which the legislation bans, would lead to savings that could close the gap. Part D backers—mostly Republicans and PhRMA—counter with "Don't fix it if it ain't broke," pointing to surveys showing that as many as 80 percent of the 23 million subscribers are pleased with the program after just the first year. Plus, they say, Part D's so-called consumer-driven design controls costs, which, in fact, came in lower than projected.

The media has binged on the donut hole, running countless stories about seniors with serious medical conditions who were unable to afford their prescriptions and had to stop taking them, say, or choose buying pills over paying electric bills. Understandably, seniors, doctors, and caregivers have all been frightened, confused, and angered. When advocates declared a National Medicare Part D "Donut Hole Day" last September 22—the date when the "average" beneficiary would hit the $2,250 limit and therefore fall into the gap—golden-years grassrooters turned out in full force. They picketed PhRMA offices chanting "Pharma got the donut, we got the hole," marched on statehouses, and held an "Eliminate the donut hole" action, during which some 70,000 little pastries were eaten, crushed, thrown, and otherwise destroyed.

Needless to say, squaring an uprising of oldsters with that 80 percent pleased-with-Part-D statistic is more than just a math problem. With Part D a work in progress, it has been all too easy to size the donut hole to any agenda's needs. For example, AARP, after only six months, was agitating that between 24 percent and 38 percent of enrollees were hitting the hole. But by September, America's Health Insurance Plans (AHIP) member organizations were reporting a modest 10 percent. Meanwhile, individual insurance plans keep floating much higher figures—by deceptively including the most vulnerable Part Ders, the 30 percent of low-subsidy enrollees who are, in fact, protected from loss of coverage.

But now that first-year data are in, it's possible to check the gap against reality. A new study conducted for PhRMA by the Amundsen Group, a consulting firm based in Lexington, Mass., reports that 12.6 percent of all Part D beneficiaries got donut-holed in 2006. That's about 2.8 million seniors—many of whom presumably have significant health problems—and no matter what your position or politics, that situation has to give you pause.

Still, a closer analysis reveals a less troubling landscape. Amundsen found, after combing through 86 million Part D transactions extracted from Verispan's anonymous patient-level pharmacy database, that the actual number of Part D beneficiaries who ended up paying full price for their meds once in the gap was 4.6 percent. The remaining 8 percent had plans that provided complete or partial gap coverage—or "wraps" from past employers, or some other prescription insurance. In addition, fewer than half of these out-of-pocket payers ended up forking over more than $1,000, and only 0.8 percent of all Part Ders had to come up with the full $3,600, after which catastrophic coverage kicked in.

It should be noted that other analysts are coming up with other, often higher percentages of enrollees falling into the gap. And according to Amundsen, the percentage of seniors paying full price is likely to inch up to slightly more than 6 percent this year, since many of 2006 Part Ders signed up late and didn't have 12 months of drug spend.