Help With High Drug Costs

How does Medicare Part D’s new 50% discount on brand-name prescription drugs work for seniors affected by the so-called doughnut hole? Doesn’t it just mean that we end up in the doughnut hole for longer?

The prescription-drug coverage gap, known as the doughnut hole, has been the big downside of the Medicare Part D program since it was launched in 2006. But beginning in 2011, the gap will start to shrink. Once your total drug costs reach $2,840 for the year (including your share and the insurer’s share of the costs), you will get a 50% discount on your brand-name drugs. Your pharmacy will apply the discount automatically when you purchase the medications. After your out-of-pocket costs reach $4,550 for the year, you qualify for catastrophic coverage and your Part D plan picks up most of the tab.

As you mention, this discount could seem to be a lot of smoke and mirrors -- merely leaving you in the doughnut hole for longer -- if they hadn’t changed the way the doughnut hole is calculated, too. To avoid this problem, the entire cost of the drug -- before the 50% discount is applied -- counts toward the amount needed to fill the coverage gap. If the drug costs $100, for example, and you pay $50, the entire $100 will count toward your out-of-pocket costs that trigger catastrophic coverage.

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The discount comes off the price that the Part D plan has negotiated with the pharmacy for that specific drug, says Jim Turner of Humana. The dispensing fee (often $2 to $5) isn’t discounted, but it is added to the discounted amount of the prescription and does count toward the $4,550 in out-of-pocket costs.

Also starting in 2011, you’ll only pay 93% of the cost of generic drugs, with the government picking up the remaining 7%. But in this case, only the 93% of the cost that you pay yourself counts towards leaving the doughnut hole.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.