Medicare's 'Doughnut Hole' Awaits

For the past decade or so, health care experts of a conservative political stripe have been touting "consumer-driven" insurance plans, which, they say, would both cut costs to consumers and help drive down inflation in the cost of medical expenses.

The idea is that if careful shopping actually put cash back in consumers' pockets, they would choose doctors, hospitals, drugs and other services more on price and less on non-economic criteria. That, in turn, would put pressure on expensive providers to cut prices.

To that end, Congress has changed tax laws and various types of consumer-driven plans took root. So far though, growth has been modest.

But now the weird structure of the new Medicare prescription drug benefit may provide a new test of the consumer-driven hypothesis.

As many people probably know by now, the new Medicare Part D, which pays a portion of Medicare beneficiaries' drug costs, goes into operation Jan. 1. Seniors began signing up last month, and have until next May 15 to enroll without being charged a late-sign-up penalty.

However, the benefit structure is, shall we say, unusual. First, there is a $250 deductible, meaning you don't get any benefit until your drug costs exceed that amount. After that, you pay 25 percent of the costs up to $2,000.

Then, at $2,251 -- in a provision that has come to be called the doughnut hole -- coverage generally ceases until your costs reach $5,100, at which point it picks up again and pays 95 percent of any additional costs.

Some of the Medicare drug providers have said they will pay some of the doughnut-hole costs, either for a limited array of drugs or for higher premiums, but this gap is both a potential trap for the unwary and, a recent study by Consumers Union suggests, an opportunity.

After reviewing Medicare drug plans in Minneapolis, Atlanta and Sacramento, Consumers Union concluded that seniors who choose their drugs carefully can save a lot of money, including enough to avoid falling into the doughnut hole.

The study looked at five commonly prescribed drugs -- for high cholesterol, high blood pressure, heart disease, arthritis pain and depression -- and found that seniors taking them could save between $2,300 and $5,300 a year under various Medicare Part D insurance plans by switching to lower-cost alternatives that CU has found to be safe and effective.

CU urges seniors to consult with their physicians to see if cheaper alternatives would meet their needs. The group posts on its Web site a list of "Best Buy" drugs, which might give a senior a starting point for such a discussion with a doctor. That's at http://www.crbestbuydrugs.org/drugreports.html .

Even if a senior took only one drug, he or she could realize savings between $279 to $2,597 a year by switching to a cheaper alternative on the organization's list, according to the report.