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Little Dread of the 'Doughnut' Seen in 2006 Rx Plan Picks

By John Reichard, CQ HealthBeat Editor

November 21, 2006 -- Brand names and low premiums, not coverage in the dreaded "doughnut hole," were the big draws in the "robust" market that developed for Medicare drug coverage in its first year. That was the finding of a study released Tuesday that claimed to be the most detailed look yet at enrollment in the drug benefit created under of the Medicare overhaul law (PL 108-173).

The doughnut hole is the informal term for the portion of the standard Medicare drug benefit in which beneficiaries must pay 100 percent out of pocket when their prescription costs reach between $2,250 and $5,100. Critics of the benefit for months have slammed the doughnut hole as a major flaw in the benefit, but those criticisms appear to not have made a major impact yet on market choices.

Some critics say Medicare has not done enough to make beneficiaries aware of the gap. And many of the plans offered to beneficiaries do not have gap coverage.

"Few enrollees chose plans with gap coverage in 2006, which could be a concern for those with relatively high drug costs who might be better off in a plan with full-year coverage and no gaps, despite the higher premium," said the authors of the study, which was posted Tuesday on the Web by the policy journal Health Affairs.

The Medicare drug benefit, or Part D, market consists of "PDPs," or Prescription Drug Plans offered to beneficiaries in traditional Medicare, and "MA-PDs," or drug benefits offered through health plans in the Medicare Advantage managed care side of the program.

About 4 percent of the 22.5 million beneficiaries enrolled in PDP or MA-PDs signed up for plans that provide coverage in the gap for both brand-name and generic drugs, according to the study by Juliette Cubanski and Patricia Neuman of the Henry J. Kaiser Family Foundation. Another 8 percent have coverage in the gap for generic drugs only.

The authors said 10.9 million of the 22.5 million people enrolled in Medicare would be liable for all prescription drug costs in the gap. The remainder either have gap coverage or are among the 9.3 million low-income beneficiaries qualifying for subsidized coverage in the gap.

According to the Kaiser Foundation, four million beneficiaries actually will have spending that reaches the coverage gap in 2006.

The study found that 72 percent of enrollment is concentrated in 10 companies. United HealthCare plans accounted for 25 percent of Part D enrollment, and Humana accounted for 19 percent.

The study noted that the private sector responded strongly to the market created by the Medicare law. Many analysts were skeptical that private plans would enter the Part D market, but with the federal government on the hook for a portion of any losses that they incurred, many plans jumped in.

In 2006, 266 firms took part in the Part D market, offering a total of 3,873 plans. And next year "the Part D market is expanding rather than contracting, with 17 national plan sponsors—up from 9 in 2006—and 31 percent more stand-alone PDPs nationwide," the researchers said.

The strong response by insurers "is at least partly attributable to their drive to gain market share in Medicare given limited opportunities for growth in other sectors and to payment policies that encourage plan participation and mitigate risk, including reinsurance and risk corridors," the study said. Risk corridors provide for partial government payment of losses sustained by plans.

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