House Tri-Committee Proposal Would Take 14 Years To Close Part D Donut Hole, Study Says

An analysis by Avalere Health of the proposal to eliminate the coverage gap in the current Part D benefit says formula changes would need until 2023 to take full effect.

Editor's note: This story has been revised from the initial version published July 6. On July 8, Avalere Health provided revisions to some of its estimates, which have been reflected in the edited story.

A proposal in the House health care reform discussion draft to gradually eliminate the "donut hole" in the Medicare Part D program could take an estimated 14 years to do so, according to a July 1 report by Avalere Health.

The coverage gap that has been part of the standard Part D prescription drug benefit since the program was created has long bothered many Democrats, and the three House committees with jurisdiction over health care reform are now aiming to eliminate this "donut hole" through their proposal for reform legislation (Also see "Public Plan Drug Negotiations Could Stifle Innovation, J&J Testifies" - Pink Sheet, 29 Jun, 2009.). The donut hole would be phased out by gradually raising the threshold when 75 percent coverage ends - and beneficiaries become responsible for the full cost of drugs - while also gradually lowering the level at which catastrophic coverage kicks in.

This year, while some plans provide more thorough coverage, beneficiaries in a standard plan pay 25 percent coinsurance after reaching a $295 deductible, up until their overall drug costs total $2,680. Catastrophic coverage kicks in at $6,154 of total drug costs, leaving a coverage gap of $3,474.

As the various thresholds have risen by formula each year since Part D went into effect in 2006, the beneficiary's out-of-pocket costs until reaching the catastrophic threshold have risen each year, from $3,600 in 2006 to roughly $4,350 this year.

Avalere's study projects that if the threshold formulas remain unchanged, the gap between the ceiling for 75 percent coverage and the threshold for beginning catastrophic 95 percent coverage would widen gradually. For example, in 2017, the initial benefit limit would be $4,190 and catastrophic coverage would kick in at $9,551, leaving a donut hole of $5,361. Total out-of-pocket spending by a beneficiary before reaching catastrophic coverage would total $$6,750.

By 2023, the situation would be exacerbated - the initial benefit limit would be $6,388 and catastrophic coverage would start at $14,496, leaving a donut hole of $8,109. The beneficiary's total out-of-pocket costs would be $10,221.

Coverage gap would narrow gradually under proposal

By contrast, explained Bonnie Washington, VP of Avalere Health Reform Efforts, if the House proposal went into effect, the gap between the end of 75 percent coverage and the start of catastrophic coverage would narrow gradually, with the donut hole being eliminated entirely in 2023.

In 2017, for example, 75 percent coverage would end at about $9,300 total drug costs, and catastrophic coverage would begin at about the $12,100 threshold.

"It takes a while for this to happen obviously and it also raises the amount of money someone has to spend out of pocket over time to get to the catastrophic level," Washington said in an interview. "I'm assuming the House did that because everyone agrees that filling the donut hole is very expensive. This is their way of ... not adding as much money to the cost of their bill as they could have with other policy choices."

Avalere's study does not include an estimate of how much the House plan would cost.

Avalere also projects that fewer Medicare beneficiaries will reach the donut hole during the period that the gap is phased out because of the increases in the initial coverage threshold. This would be more likely, however, for participants who take chronic condition drugs such as statins, where low-cost generics are available, than for people who need higher-cost medications, including biologics.

"Some of the biologics that you see covered primarily on specialty tiers in Part D are thousands of dollars a month, so currently you take one month's worth and you've hit the donut hole, and then the following month, you've reached catastrophic coverage," she said. "Under the House bill, you're going to be paying for several months of that biologic before you reach that $16,000 limit as opposed to today when it might be one month and out."

House, PhRMA approaches unlikely to be combined

Avalere has not conducted an assessment of the industry proposal proffered by the Pharmaceutical Research & Manufacturers of America, under which the drug makers would pay 50 percent of beneficiaries' costs while they are in the donut hole (Also see "Dollars For Donuts: PhRMA's $80 Bil. Coup In Health Care Reform" - Pink Sheet, 29 Jun, 2009.).

It is unlikely the two proposals would be combined, Washington said, because the PhRMA proposal is designed to work within the current benefit structure, and reduce rather than eliminate the donut hole.

-Joseph Haas ([email protected])