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Medicare 'Catastrophic' Protection Not So Hot for Those with Persistently High Drug Costs, Study Says

JULY 12, 2005 -- Under the new Medicare drug benefit, patients hammered with high drug costs year after year will have to pay bigger percentages of their annual drug bills than patients with relatively low yearly costs, according to a study published Tuesday in the health policy journal Health Affairs.

Congress should consider changing the cost-sharing provision of the benefit "if fairness is judged on the basis of the share of income devoted to out-of-pocket payments," advised the study led by Bruce Stuart, a professor at the University of Maryland Center on Aging. The study suggests incorporating a cap on the proportion of income a patient spends on drugs.

The study examines the impact of the "doughnut hole" gap in coverage, in which beneficiaries pay 100 percent of prescription costs after they exceed a certain level of out-of-pocket spending and before the catastrophic benefit kicks in.

For people with big yearly drug bills, this means they will pay higher percentages of their drug bills, and in many cases will pay a relatively large share of their household incomes for prescription drugs—even though the benefit is designed to protect against catastrophic drug expenses, the study says.

"Because drug spending is highly persistent over time, beneficiaries who experience the biggest gaps in coverage are likely to do so year after year, with potentially serious consequences," the study says.

Centers for Medicare and Medicaid Services spokesman Garry Karr defended the catastrophic benefit, saying it will bring "major help" to beneficiaries facing several thousand dollars in yearly drug expenses.

The study examined the cumulative impact of the drug benefit's gaps in coverage by forecasting out-of-pocket spending by three categories of beneficiaries over the first three years of the benefit—potential enrollees in the standard Medicare drug benefit, "high spenders" with projected 2006 prescription spending above $2,250, and "catastrophic spenders" with projected spending above $5,100.

Under the standard benefit, the beneficiary pays all of the first $250 dollars in prescription costs during the year, 25 percent of the costs between $250 and $2,250, 100 percent of the costs between $2,250 and $5,100, and 5 percent of the costs after $5,100.

The study projected that potential enrollees in the standard benefit would have to pay 44 percent of their total out-of-pocket costs, high spenders 67 percent, and catastrophic spenders 51 percent. If all groups paid 56 percent, the total annual cost to taxpayers of the standard drug benefit would not change, the study said.

The average high spender will accumulate total out-of-pocket drug costs of almost $11,000 during 2006–08, and the average catastrophic spender $12,300 (the figures do not include premiums beneficiaries must pay each month for the drug benefit).

The researchers estimated that if one member of a household headed by someone age 65 or older was a high spender, that household would spend 12.6 percent of its income on prescription drug costs. The figure would be 14.2 percent in the case of a household with a catastrophic spender.

"Under these circumstances, the combined out-of-pocket obligation for an aged couple . . . could easily approach 20 percent of household income," the study's authors state.

The researchers suggest "replacing the current catastrophic threshold with a cap on the proportion of beneficiaries' household income paid out of pocket for drugs," and said how low the cap should be set "is open to debate."

CMS spokesman Karr voiced concern the study might deter patients from signing up for the standard drug benefit. Many beneficiaries have no coverage at all, and without catastrophic protection, "they're going to have to cover all of the costs" of their prescriptions.

Karr added that far fewer people would fall into the "doughnut hole" gap than a quick glance at the study might indicate. The study said 38 percent of beneficiaries would cross the threshold where they begin paying 100 percent of drug costs. But Karr said that figure is not the percentage of all Medicare beneficiaries who would fall into the gap; rather, it is the percentage who would do so that had signed up for standard coverage.

Many beneficiaries won't get standard coverage, he noted. About 33 percent of beneficiaries will get Medicare's low-income drug benefit, which does not have the doughnut hole. Another 15 percent will sign up for Medicare Advantage plans, which in many cases will offer better benefits than the standard coverage. And 25 percent of beneficiaries will get drug coverage through former employers.

Factoring in these non-standard categories means only about 10 percent of all Medicare beneficiaries would fall into the doughnut hole in standard coverage, Karr calculated.

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