Health October 16, 2008, 5:00PM EST
Medicare's Doughnut Hole Needs Plugging
A gap in the program's drug coverage is driving senior citizens nuts. Both McCain and Obama are considering reforms
By Arlene Weintraub

For many older Americans, fall is a bitter time of year associated with a deceptively sweet name: the "doughnut hole." Far from a sugary treat, it's a coverage gap in the Medicare Part D drug program.
When Part D was first implemented in 2004 to help elderly patients pay for their prescription drugs, the government imposed a yearly limit on how much it was willing to shell out. Seniors are covered right up until they hit the threshold, which is $2,510 in 2008. From that point until the end of the year, they pay fully out of pocket—unless their costs soar to the point where the senior qualifies for catastrophic coverage, which kicks in at $5,726.
The doughnut hole has always been a source of dread for the elderly. But now, with the financial crisis decimating 401(k)s and other retirement plans, many cash-strapped seniors are simply doing without some of their meds. In August a survey from the Henry J. Kaiser Family Foundation showed that in 2007, 26% of Part D beneficiaries—3.4 million people—landed in the doughnut hole. On average, their monthly out-of-pocket costs doubled, to $196. As a result, 15% of people with chronic illnesses stopped taking their drugs while they were in the coverage gap. "This raises concerns," says Tricia Neuman, vice-president at Kaiser Family Foundation in Menlo Park, Calif.
Larry Kay of Yucaipa, Calif., is having so much trouble fighting his way out of the doughnut hole that he's thinking about coming out of retirement. A hunter and former quality-control inspector for a company that makes fences, the 69-year-old Kay hit the hole in May and is now paying $650 a month for drugs to treat his high cholesterol and a lung condition called chronic obstructive pulmonary disease, or COPD. He has stopped using his COPD inhaler in the morning, even though he's not supposed to skip doses. "If my doctor knew, he'd be very upset," he says.
Health policy experts believe the next Administration will be under pressure to address the doughnut hole, and both candidates have expressed some support for reforming the program. Senator Barack Obama backs the idea of letting the government negotiate drug prices for Part D. (It doesn't have the right to do so now.) Senator John McCain has said that higher-income beneficiaries should pay higher premiums for their Part D plans.
Right now, Wall Street's crisis and the $700 billion bailout plan are drawing attention away from health-care reform. But there is little doubt the next President will place drug benefits for seniors high on his agenda. "There is a growing recognition that the doughnut hole is impairing people's access to medications," says Dr. Carolyn Clancy, director of the Agency for Healthcare Research & Quality in Rockville, Md., a public service agency of the U.S. Health & Human Services Dept.
Meanwhile, the doughnut hole continues to exacerbate financial burdens on seniors. On Sept. 26, health-care advisory firm Avalere Health released a report predicting Part D beneficiaries who joined the 10 most popular Medicare plans would see their premiums rise by 30%. At places like California Health Advocates in Sacramento, which helps Medicare beneficiaries navigate the system, frustration is mounting, says spokeswoman Karen Fletcher. "Seniors go through the deductible, then they fall into the gap, then a new year comes around, and they have to start all over again," she says.
Weintraub is a senior writer for BusinessWeek's science and technology department.