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    2006 Benefit Could Anger Seniors Expecting More Help With Drug Costs, Analyst Says

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    Report Warns of Medicare Drug Coverage Gaps

    June 1, 2004 -- Medicare began its controversial prescription-drug discount plan today, although some analysts are already looking ahead to 2006 when the program's paid drug benefit begins. And some are warning that many seniors may find far lower benefits than they expect.

    A new report issued Tuesday warns that substantial numbers of elderly and disabled Medicare beneficiaries can expect high drug expenses even after the program begins in 19 months. Some, especially those with more than one chronic illness requiring medication, may still incur thousands of dollars in out-of-pocket costs, it concludes.

    "I suspect there are a lot of people who will be particularly disadvantaged after just a few years" with the benefit, says Marilyn Moon, director of health programs at the American Institutes for Research, who authored the report for the Commonwealth Fund.

    The 'Donut Hole' Revealed

    The expected costs are due to peculiarities in the Medicare benefit law that cause a gap in available coverage. Medicare is set to pay 75% of initial drug costs up to $2,250 after a $250 deductible for most seniors. But then the program pays nothing until drug expenses reach $5,100, after which the government pays 95% of all costs.

    The complete lack of coverage for drug spending between $2,251 and $5,100 is often called Medicare's "donut hole" by Washington analysts and lawmakers. More than one-quarter of all Medicare beneficiaries are projected to have drug spending that falls in the donut hole's range, according to the Congressional Budget Office.

    The structure means that sicker patients with higher drug costs will end up not only paying more for their drugs, but paying a higher share of their drug costs than those with fewer prescriptions, Moon says. A senior with $1,000 in annual drug costs would pay $438 out of pocket under the plan, while a beneficiary with $5,000 in costs would be responsible for $3,500 of their total costs.

    "The donut hole will reduce protection against drug expenses just as many of those Medicare beneficiaries who are most in need are expecting financial relief," writes Moon, who is a former Medicare trustee. "The new benefit's donut hole will likely anger many beneficiaries once they understand these rules," the report states.

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