Some beneficiaries are already beginning to feel the financial pain of falling into the so-called "doughnut hole"—the most criticized part of Medicare's prescription drug benefit. This gap in coverage in the middle of the benefit starts when many enrollees go abruptly from just making copayments for their drugs to forking over 100 percent of the cost.

Recent polls show the program has grown in popularity as more people signed up and discovered they were saving money. But even among those who were satisfied with their coverage earlier in the year, the gap comes as a shock.

"It blew my mind," says Caroline Taylor, a 66-year-old retiree from Phoenix. "I couldn't believe that in only four months I'd be in the doughnut hole." Early in May, her monthly out-of-pocket cost for her six drugs ballooned from $30 copays to paying full price—$99 for one drug, for example, $184 for another.

Taylor hadn't grasped that the $2,250 limit in the initial coverage period prior to the gap means total drug costs: what her plan had contributed as well as what she had paid. "I didn't understand that," she says.

She's not alone. "The coverage gap is a totally new phenomenon that you don't have in your auto, fire or home insurance. So it's one of the hardest features for people to comprehend," says Stephen Schondelmeyer, a drug benefit expert at the University of Minnesota. "It's like having flood insurance—but for the summer months, when you might need it, they don't cover it."

Estimates of how many people will fall into the gap vary from 24 to 38 percent of all enrollees. Humana, one of the very few insurers that fully cover the gap, under the most expensive of its three Part D plans, reports that 12.7 percent of its 2 million enrollees were in that plan at the end of March.

For people with drug costs high enough to get through the gap, "catastrophic" coverage beckons, dramatically reducing their out-of-pocket share to 5 percent. But to get there, they must have spent $3,600 of their own money on drugs so far this year, and many can't afford that. Taylor, with potential drug costs of more than $13,000 in 2006, is one of them. She'll cut back on her pills, she says, and hopes to obtain free supplies from drug manufacturers' assistance programs—the same way she managed, in fact, before Part D began.

Congress designed the benefit to give enrollees some help with their first slice of drug costs and more comprehensive help to people with low incomes and high drug expenses. Fitting those three components into the program under the available budget could not be done without a gap in coverage, experts say.

Because of that, the federal government isn't likely to fund billions of dollars to eliminate the gap. But popular demand for continuous coverage might persuade more of the private Part D plans to offer it as an option in future years.

Explaining the Gap

Q. What is the coverage gap?

A. Medicare drug coverage is generally divided into three phases. Depending on your plan, in the first phase (initial coverage period), you may pay a deductible and about 25 percent of your drug costs. In the third phase (catastrophic coverage), you pay about 5 percent. In between these two periods, there is a gap in coverage (commonly called the doughnut hole) when most people must pay 100 percent of their drug costs out of their own pocket.

Q. Does the gap affect everyone?

A. No. You will not fall into the gap if:

• you have a Medicare drug plan that offers full coverage throughout the year.
• your total drug costs are no more than $2,250 in 2006.
• you receive Extra Help because you have low income and few assets.
• you have additional benefits (e.g., from an employer or a state pharmacy assistance program) that cover your drugs through the gap.

Q. When does the gap start and end?

A. It begins at the end of the initial coverage period, when the total cost of drugs you have used since joining Part D in 2006 reaches $2,250. This amount includes your deductible, your copays (about 25 percent of the drug costs) and the 75 percent of your drug costs that your plan has paid. It does not include your premiums.

The gap ends when you have spent $3,600 out-of-pocket in 2006, excluding premiums. This amount includes payments itemized below.

After you reach that limit, your Medicare coverage automatically resumes at the catastrophic level, with low copays. This three-step cycle starts over again each year. The dollar limits will be higher each year as drug costs rise.

Q. What counts toward the $3,600 limit?

A.

• your deductible
• your copays in the initial coverage period
• payments that you have made out of pocket in the gap for drugs purchased from a pharmacy in your plan's network (see below)
• payments for your drugs in the gap made by a family member, friend, a charitable group or a state pharmacy assistance program.

In all cases, only payments for prescription drugs your plan covers (including any formulary exceptions you receive) count toward the limit.

Q. What does NOT count toward the $3,600 limit?

A.

• your premiums
• payments you make for drugs not covered by your plan or purchased from a pharmacy not in your plan's network
• payments made by your plan or by an employer, union, federal agency or other group insurer
• any drugs bought from Canada or other foreign countries
• free or low-cost drugs received from a drug manufacturer's patient assistance program or as free samples from a physician

Q. How will I know when I've reached the start or end of the gap?

A. These changes should be recorded in Medicare's central computer system, so that your pharmacist knows what to charge you at any given time. Also, your plan must send you monthly statements showing how much you and the plan have spent and how near you are to the start or end of the gap.

Q. If I switched plans earlier in the year, does that make a difference?

A. It shouldn't. Plans are required to coordinate the costs and payments of people who were once enrolled in one plan but are now in another. What you spent in the first plan should be reflected in statements from the current plan. However, it would be wise to ask the first plan for a statement of your drug purchases to the date of termination, so that you have a written record. Your current plan has an obligation to fix any inaccuracies that may have arisen from switching plans.

Q. Do I have to buy my drugs from my plan during the gap?

A. Not necessarily, but by doing so you will continue to receive them at the discounted prices your plan has negotiated. If you find a better discount eslsewhere, you can buy at that price—but, under Medicare policy, only drugs bought from a pharmacy that is in your plan's network will count toward your $3,600 out-of-pocket limit.

Q. If I fall into the gap but don't expect to get out of it, why should I continue paying premiums?

A. If you stop paying premiums, you will be disenrolled and lose coverage. Then, if you want to sign up again for Part D in the future, you'd pay a late penalty—an amount that adds to your premiums and increases over time. Also, you may have to repay the premiums owed to your present plan before re-enrolling in it.

Q. Can I delay falling into the gap?

A. Yes, it's possible—if your drugs have generic or lower-cost brand-name equivalents that are covered by your plan. Ask your doctor if these would work as well as the ones you now take. Choosing these drugs could also reduce your copays. For information on how similar drugs compare in effectiveness, go to aarp.org or to the Consumer Union's site.

Q. I have high drug costs but can't afford to spend $3,600 out of pocket. What can I do?

A. You can try using lower-cost drugs, as explained above, to stretch your initial coverage and lower your expenses in the gap.

If your income is limited, you may qualify for Extra Help. Call Social Security at (800) 772-1213 or go to its website. Or contact a state pharmacy assistance program—call (800) 677-1116 for the number of your state health insurance counseling program or go to shiptalk.org.

Some drug manufacturers still offer free or low-cost drugs to qualified Medicare beneficiaries. Call the Partnership for Prescription Assistance at (888) 477-2669 or visit pparx.org. Or try asking your doctor for free samples.

Additional Related Links

New Q&A on Rx Plans (March 2006)

New "Extra Help" Income Limits (February 2006)

Quick Way to Find a Medicare Rx Plan (January 2006)

The New Math (January 2006)

Medicare Special Report: The Basics