The not-so-sweet side of closing 'doughnut hole'

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By Amy Goldstein
Washington Post Staff Writer
Monday, December 28, 2009; A03

Six years after Congress added a prescription drug benefit to Medicare, Democrats in the House and Senate are poised to make a central change that they and most older Americans have wanted all along: getting rid of a quirk that forces millions of elderly patients with especially high expenses for medicine to pay for much of it on their own.

The closing of an unusual gap in Medicare drug coverage -- a gap that Republicans had, when they controlled Capitol Hill and the White House, insisted was needed for the government to be able to afford the program -- would "forever end this indefensible injustice for American's seniors," Senate Majority Leader Harry M. Reid (D-Nev.) said in announcing that the Senate would join the House in supporting the change.

But details of the change underscore that, for patients and the federal budget alike, the implications of the sprawling health-care bills pushed through by congressional Democrats are more nuanced than lawmakers' talking points.

The Democrats and President Obama have been clear that the "doughnut hole," as the gap is known, would disappear gradually over the next 10 years. They have not mentioned that Medicare patients would, according to House figures, face a slightly larger hole in coverage during two of the next three years than they do today.

Proponents say the government can afford to eliminate the gap because the pharmaceutical industry would pay for the phaseout. But less than half of the $80 billion that drugmakers agreed to provide, under a health-care reform agreement over the summer with Senate Democrats and the White House, would be used to help fill the gap, according to Senate Democratic aides. Moreover, there are no budget forecasts far enough into the future to show how much the expanded drug benefit would cost the government once the gap is fully closed.

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Despite such uncertainties, the prospect of filling the hole in drug coverage responds to a strong desire among older Americans -- a significant constituency that tends to be wary of changes to the health-care system. The 2003 law that added the drug benefit to Medicare was the largest expansion since the creation of the federal health insurance system for the elderly four decades ago. The new coverage became available in 2006. As of last year, about 32 million people, nearly three-fourths of everyone on Medicare, had it.

Nancy LeaMond, executive vice president for social impact at AARP, the lobby for people age 50 and over, said that although the benefits have proven popular, "you really can't have a meeting with a chapter, you can't have a town hall" without complaints surfacing about the doughnut hole. "It's a major pocketbook issue."

Pat Liberti, a retired nurse in Salem, Mass., who has heart disease and diabetes and has had five small strokes, takes 16 prescription drugs. She is 59, six years younger than the typical age to join Medicare, and is eligible because her health problems have classified her as disabled. She's entered the doughnut hole each year, this year in May. At that point, her Blue Cross/Blue Shield plan stopped paying 75 percent of her medicine's price. Since then, she has spent $2,206 on drugs.

"You know, I did everything right. I worked. I saved. I own my own home. I have an IRA," Liberti said. She had hoped to save the long-term disability checks she gets from her former job for her old age. Instead, she spends them on medicine.

How many people are in similar circumstances is unclear. The Kaiser Family Foundation, a health policy organization on whose figures House Democrats relied, estimated that, in 2007, one-quarter of the Medicare patients with drug coverage fell into the gap. Less publicized figures by the Centers for Medicare and Medicaid Services, the agency responsible for the program, show that about half that many fell into it. Kaiser and the agency disagree on how often people who reach the gap stop taking some of their medicine.

However many people have been affected, closing the doughnut hole has been a rallying cry among the elderly. During the second week in December alone, LeaMond said, AARP members placed 240,000 calls to 29 Senate offices, asking them to follow the House in eliminating the gap.

Under the health-care bill the House passed in November, people who reach the doughnut hole would be $500 better off next year than they would otherwise. But the impact over the next few years would be subtler than it appears at first for two reasons: The gap -- without any change -- is scheduled to expand each year, and the bill would fill it gradually. As a result, patients would face a larger coverage hole in 2011 and 2012 than this year, according to Ways and Means Committee data. After that, it would shrink more rapidly and disappear in 2019.

The just-passed Senate measure would narrow the gap halfway. Even before the bill was approved, Reid and the chairman of the two Senate committees that handle health-care issues said they would, as part of negotiations to resolve differences between the two bills, accept the House's goal of closing the hole completely.

Congressional budget analysts have not said how much that would cost. Instead, they predicted a savings of $43 billion over the next decade -- based on the combined effect of filling the hole and two steps the pharmaceutical industry has said it would take in part under the deal earlier this year with the White House and the Senate. As one of those steps, drug manufacturers would repay the government the difference between the prices the companies charge for medicine for low-income patients in Medicare and the prices they used to charge in Medicaid, before the drug benefit existed. As the other step, the House bill requires the manufacturers to give a 50 percent discount for brand-name drugs that patients buy once they enter the doughnut hole -- and to give the government the equivalent of that money after the hole closes.

Budget analysts say the discounts for brand-name drugs would end up costing the government money; fewer people would switch to cheaper generic medicine, in turn causing more people to reach the gap's far side, beyond which almost all remaining drug expenses are covered.

Without a Congressional Budget Office prediction, the only estimate of the cost of filling the gap comes from the Medicare program's chief actuary, Richard S. Foster, who told House Republicans it would be $31 billion over the next decade. No one has analyzed how expensive the expanded drug benefits would become after that, although health-care options prepared a year ago by the CBO provided a clue: It said that, if the gap were eliminated right away, it would cost $134 billion over 10 years.

Democrats predict that, in the end, pharmaceutical companies will provide enough money to cover the expense. Republicans are skeptical. "They are shielding the true cost by phasing it in," said Sage Eastman, spokesman for Rep. Dave Camp (Mich.), ranking Republican on the Ways and Means Committee.

Meanwhile, no one knows how much the pharmaceutical industry could end up benefiting by an expansion in coverage that could drive up spending on brand-name drugs. Said one health policy expert who favors closing the gap: "It's not very transparent."

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