July 25, 2011
MEDICARE PART D—NEW DISCOUNTS FOR PEOPLE IN THE DONUT HOLE
By: Robin K. Cohen, Principal Analyst
You asked why people who are in the Medicare Part D “donut hole” must buy generic drugs when the same drug under a brand name is cheaper because of new discounts on drugs bought during the donut hole period.
The 2010 federal health care reform law made several changes in the Medicare Part D drug assistance program, including offering help to individuals who have reached their initial coverage limit and are in the “donut hole” (period during which historically, there has been no federal drug subsidy available). The federal law eased the burden for people in this situation by providing discounts on drugs. The discounts are much higher for brand name drugs than for generics, which could make the former cheaper. But not all plans offer the brand name drugs. The Part D plan in which your constituent is enrolled most likely only carries the generic drug on its formulary (list of drugs available for purchase).
MEDICARE PART D DONUT HOLE AND NEW DISCOUNTS
The Medicare Part D donut hole is the gap in coverage that begins once a beneficiary and his or her Part D plan have together paid the $310 deductible plus the initial federal coverage limit of $2,530 (the beneficiary pays the deductible and 25% of this latter amount). During this coverage gap period, the beneficiary historically paid 100% of the next few thousand dollars ($3,607 in 2011) in drugs. The 2010 federal health care reform legislation (Patient Protection and Affordable Care Act, P.L. 111-148, as amended by P.L. 111-152) eased that burden by providing discounts starting in 2011 (beneficiaries received a flat $250 rebate in 2010). These discounts include a 50% reduction on brand name formulary (drugs that the Part D plan covers) and a 7% discount on generic drugs in the formulary. These discounts increase every year until 2020, when all beneficiaries will pay a flat 25% of the cost for any drugs in their plan's formulary.
Because the generic drug discount is much smaller than that for brand name drugs, it is conceivable that the generic equivalent of a brand name drug is more expensive to beneficiaries. According to the Center for Medicare Advocacy, the Part D plans often take the brand name drug off their formulary once a generic becomes available. Plans are permitted to establish which drugs they want on their formulary and since generics are cheaper for them (and Medicare, which pays part of the drug costs), the plans logically would choose those over the more expensive brand name ones.
Beneficiaries who can show that the brand name drug is medically necessary can file an appeal to obtain that drug.
OLR report, OLR Backgrounder: Federal Health Care Reform: Medicare Part D Provisions, 2010-R-0404
Medicare Part D primer from the Center for Medicare Advocacy www.medicareadvocacy.org/medicare-info/medicare-part-d