What Health Care Reform Means for Medicare Drug Coverage

Ask Kim

What Health Care Reform Means for Medicare Drug Coverage

The new law provides rebate checks for people when they hit the doughnut hole in their prescription-drug coverage.

How will health-care reform affect people who have Medicare Part D prescription-drug coverage? I hear they will get help with expenses that fall in the doughnut hole.

Those with Medicare Part D are among the first who will benefit from health-care reform: They’ll receive a $250 rebate check if they reach the doughnut-hole coverage gap in 2010, and the Department of Health and Human Services will provide the first wave of rebates as early as June 15. You don’t need to apply for the rebate; the government will automatically send it when you reach the doughnut hole.

In 2010, the doughnut hole begins after you reach $2,830 in total prescription-drug spending and extends until your total drug costs for the year reach $6,440. Within that gap, you generally have to pay the bills out of pocket. After that, your Part D plan usually covers 95% of your remaining drug costs for the year.

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The timing of the rebate check depends on the calendar quarter in which you reach the doughnut hole. People who entered it by March 31 will get the first batch of rebate checks by June 15. People who hit the gap between April 1 and June 30 should receive their checks by September 15. You just need to reach the doughnut hole to qualify for the money; you don’t have to spend $250 within the coverage gap first. You receive only one rebate check for the year.


Starting in 2011, drug companies will be required to provide a 50% discount on brand-name drugs in the coverage gap. And the doughnut hole will gradually shrink between 2012 and 2020. Along with receiving an increased government subsidy, which will begin in 2011 for generic drugs and 2013 for brand-name drugs, Part D beneficiaries will pay a smaller portion of their drug costs in the doughnut hole each year, until they have to pay just 25% of the drug costs in 2020. For a helpful table showing exactly how the coverage gap will shrink each year, see the Medicare Rights Center’s Closing the Doughnut Hole fact sheet.

There will also be some changes to Part D premiums. Starting in 2011, individuals who earn more than $85,000 (or $170,000 if married filing jointly) will have to pay a high-income surcharge for Part D premiums. (The similar surcharge that high-income Medicare Part B recipients currently pay for their premiums will continue, and the health-care reform law freezes its threshold at the $85,000/$170,000 level until 2019, instead of raising the limit with inflation.) Keep these new rules in mind when deciding whether to convert a traditional IRA to a Roth IRA in the next few years, which will increase your income in the year you make the switch and could result in higher premiums. See Health Care Reform and Roth Conversions for more information.

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Got a question? Ask Kim at askkim@kiplinger.com.