Part D Structure

Avik Roy’s recollection of how the structure (donut hole) of Medicare’s prescription drug benefit (Part D) was devised doesn’t match mine (a 2005 Health Affairs paper on the topic). I located lecture notes from my Intro to the U.S. Health Care System class that I was teaching at Duke at the same time Congress was debating its passage to recall how I framed the benefit design question at the time. I described the choice as being between two competing policy goals:

  • Address the problem of poor seniors being unable to afford prescription drugs. Such a policy motivation played out in the Part D discussion of the day would lead to a program that subsidized private coverage for low income Medicare beneficiaries.
  • Address the problem of catastrophic costs. Such a policy motivation would target subsidy toward persons with high drug expenditures.

Then I framed the final structure decided upon for the class as a political calculation designed to provide all Medicare beneficiaries with access to Part D coverage, but with the odd “donut hole” benefit structure arising due to a desire to hold total federal costs of the plan to a set level (noted as $400 Billion over 10 years at  the time; it actually ending up costing ~$1Trillion over 10 years).

Fast forward to the present, and my most most vivid experience with the program has been helping my mother in law pick a Part D plan when the firm that had been providing retiree benefits (from her deceased husband’s job) stopped doing so. When I tried to explain the donut hole concept (her prior coverage was much better) she said “that makes no sense” is it due to Obamacare? I said no, the donut hole notion comes from one of President Bush’s main policy achievements. I then explained that there were some reductions in the cost outlay for her in the donut hole, that are due to Obamacare.

She didn’t believe me on either account….

update: I edited the post for clarity; commenter was correct, it was not clearly written and I apologize for sloppiness.

About Don Taylor
Professor of Public Policy (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute), and Chair of the Academic Council at Duke University . I am one of the founding faculty of the Margolis Center for Health Policy. My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

2 Responses to Part D Structure

  1. Brad F says:

    I have heard Tom Scully on multiple occasions cite similar reasons for donut hole, mainly as a disinhibitor of rx oversuse. I always wince a bit when I hear him say it, as I recall other reasons like yourself–and whether its post hoc revisionism or fact, I am in the dark. Need more voices who were in on negotiation.

    As for Avik’s conclusions, I am not swayed. Donut hole is small potatoes. I want balanced facts, and I am agnostic on right approach because of it. On the net net, I dont know if more harm or benefit will come from a wider or narrower financial barrier. Evidence suggests that the greater the OOP, the more adverse events. How healthy people will utilize (and waste?) is unknown.

    • Don Taylor says:

      one of our big problems is that i am fairly confident we overspend on the whole, but underneath that we both over and under spend. If I am wrong about motivations for bene construction, at least I have been wrong all along!

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