By Mary Johnson
The "doughnut hole" refers to a big gap in coverage under the new Medicare Part D. Standard Medicare Part D covers the first $2,250 in drug costs.  Those are the full cost of drugs that both you and your plan must pay.  Once you hit the doughnut hole under standard Medicare coverage, you pay 100% of the next $2,850 in drug costs.  For persons with high drug costs or in poor health, coverage to fill that hole is a good idea.  Despite a huge number of drug plans, however, only a few offer coverage to fill the doughnut hole.  Usually they have a higher monthly premium and some just offer coverage that’s modest at best.  Are they worth the extra cost?

Last month, readers of this newsletter learned about my experience helping my friend Irene find drug coverage, (see "Part D Enrollment: A Stunningly Complicated Ordeal" in the January 2006 issue).  Irene narrowed her choices down to a drug plan that had a $32.09 per month premium, a $250 deductible, co-pays of $4 per generic and $17 per preferred brand name drugs.  We also evaluated a second option that provided some doughnut hole coverage, having a monthly premium of $87, no deductible and the same $4 generic and $17 preferred brand name drug co-pays.

To evaluate the value of the extra coverage, you need to learn what the full cost of your drugs will be under the plan (not just your co-pays) and how close you are to falling into the "doughnut hole."  I was able to get Irene’s drug cost information using calculators on the drug plan web site. You could also call the insurer to get this information.  The drugs Irene currently uses came to $1,431 a year, barring cost changes.  That meant she had $819 in coverage left for 2006 before she would reach the hole ($2,250 - $1,431).  The doughnut hole coverage was not very generous.  It would pay only 20% of drug costs or a total of $570 (20% of $2,850).  Irene would pay the other 80% ($2,280). 

Here’s the math:

Without doughnut hole coverage	With doughnut hole coverage
Premiums $32.09 X 12 = $385.08	$87 X 12 =                 $1,044
Deductible                          $250	Deductible                       $0
Co-pays                        $399.92	Co-pays                   $399.92
Total costs                      $1,035	Total costs             $1,443.92

Thus the doughnut hole coverage adds $408.92 to Irene’s premium costs.  Yet it would only cover an additional $570 in drug costs.  Thus, Irene’s net savings would only be $161.08 ($570 -$408.92) and only if she uses the additional coverage.  Because Irene is not close to the doughnut hole, is in good health, and gets plenty of regular outdoor exercise in her vegetable garden, she decided to save the premium and pass up the extra coverage. 

If, however, you have high drug costs that send you sliding into the doughnut hole, take a look at plans that offer the extra coverage, but carefully evaluate those costs.  Look for the plan that offers you the most generous coverage for the additional you have to pay.

February 2006