More Than 3 Million Seniors Will Fall Into Donut Hole in 2008

by James Parks, Dec 26, 2007

This will not be a happy New Year for millions of seniors. More seniors than ever are expected to fall into the Medicare Part D donut hole in 2008, the coverage gap that requires seniors to pay the full cost of their prescription drugs, according to the Alliance for Retired Americans.

Under the Medicare Part D rules pushed by the Bush administration and passed by Congress in 2003, seniors are on the hook for prescription expenses between the annual amounts of $2,510 and $5,726 in 2008. This gap of more than $3,200 has been dubbed the “donut hole.” The total costs for seniors in the donut hole, when you add in deductibles and co-pays, will hit $4,050, about $200 more than in 2007, the Alliance says.

More than 3 million of the 24 million Part D enrollees will have to pay the $4,050 in out-of-pocket expenses before Medicare kicks back in and provides catastrophic-care coverage, paying 95 percent of those prescription costs.

But, as we noted, even if they don’t fall into the donut hole, seniors are paying nearly 25 percent more in premiums for their 2008 Medicare Part D prescription coverage than they did in 2007, according to a report by the Center for Economic and Policy Research (CEPR).

Edward Coyle, executive director of the Alliance, sums up the situation facing seniors:

Between rising premiums, fewer prescriptions being covered and the growing donut hole, seniors will pay more for their drugs on every front next year.

The CEPR study, Changes in the Cost of Medicare Prescription Drug Plans, 2007–2008 suggests the increased premium costs may be the result of insurers offering low introductory premiums when the program began in January 2006 to attract seniors and later springing the higher costs on participants.

The Medicare insurers’ scheme is similar to the one used by unscrupulous brokers who created the current mortgage crisis by providing low-interest rates for two years followed by huge increases.

The average Part D premium increase will drive costs up for the average single participant by $57.70 a year to $293; for the average couple, the annual premium jumps from $470.60 a year to $586.

The study warns:

If this rate of increase is sustained for any substantial period of time, then it will have a noticeable impact on living standards.

In August, we also noted that seniors in the Part D program are more likely to pay at least $300 a month for medicines than those in other plans, according to a study published by the journal Health Affairs.

Medicare Part D is a voluntary prescription drug program, and its benefits are provided only through private plans, either stand-alone prescription drug plans or Medicare Advantage plans. Congress passed the Medicare drug legislation by a slim margin—and several lawmakers likely would not have voted for the bill had they been told the true cost.

While the Bush administration claimed the legislation would cost $400 million over 10 years, Congress learned that Medicare’s chief actuary had estimated the true cost of the program at $534 billion.

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