Many Medicare beneficiaries face financial difficulties associated with high out-of-pocket costs. About 20 percent of potential enrollees will be eligible for subsidies under the new prescription drug plan because of their low incomes. However, a Fund-supported study led by Bruce Stuart, Ph.D., estimated that 38 percent of enrollees would have high spending that falls in the so-called "doughnut hole"—a gap in coverage in which beneficiaries are responsible for 100 percent of drug costs—and another 14 percent will exceed the threshold for catastrophic coverage. The authors of the study project drug bills of nearly $11,000 from 2006 to 2008 for the average high spender and bills of $12,300 over that same period for the average catastrophic spender.(2)
Although plans providing coverage that fills the doughnut hole will be available, they will be more expensive or will provide more limited coverage—generic drugs only, for example—for this range of expenses.
In a Fund-supported study, Gerard Anderson, Ph.D., of Johns Hopkins University and colleagues explored mechanisms for eliminating the coverage gap in the Medicare drug bill. The authors concluded that Congress could eliminate the doughnut hole if Medicare were to pay no more than the benchmark drug prices of Canada, the United Kingdom, and France, although there could be a trade-off in terms of decreased spending by pharmaceutical companies on research and development.(3)
The new Medicare Part E benefit outlined by Karen Davis and colleagues would also eliminate the doughnut hole. In an October Health Affairs
Web Exclusive, the authors presented a new comprehensive benefit option for the traditional fee-for-service Medicare program.(4)
Beneficiaries who choose to enroll in the option, dubbed "Medicare Extra," would no longer need to purchase a private drug plan as well as Medigap supplemental coverage to meet their coverage needs. The new option, which provides benefits similar to the main plan covering federal employees, would eliminate the gap in prescription drug benefits and protect beneficiaries from catastrophic out-of-pocket costs—not only for drugs, but for hospital and physician services as well.
Research indicates that premiums and out-of-pocket medical expenses now constitute 22 percent of Medicare beneficiaries' incomes and will reach 30 percent by 2025.(5)
To improve the financial security of older adults, the Fund's program is exploring new strategies to encourage individuals to save more for their retirement. The Commonwealth Fund Survey of Older Adults found that nearly seven of 10 respondents were interested in a "Medicare Health Account," which would allow them to save for health costs not currently covered by Medicare.(6)