Health reform to close Medicare “donut hole”

More than 750,000 Medicare beneficiaries have so far received relief from the so-called prescription drug donut hole as a result of President Obama’s health reform law.

The Bush administration and Republican-controlled Congress created the” donut hole” with their 2003 Medicare privatization law. Essentially the law created a “drug benefit” that actually forced Medicare beneficiaries to pay hundreds, even thousands, each year more for prescription drugs.

Because  of the Republican-authored law, current Medicare beneficiaries pay 25 percent of the cost of their prescription drugs. Medicare covers the rest up to about $2,800 annually. After that amount the enrollee pays the full cost of their drugs until the price tag reaches close to $5,000. This gap in coverage is known as the “donut hole.”

Government estimates show that about 25 percent of Medicare enrollees reach the “donut hole” each year.

“High prescription drugs costs are a problem for many seniors and other Medicare enrollees with limited incomes,” said Health and Human Services Secretary Kathleen Sebelius. “These checks are an important first step in helping them afford the medications they need – and are evidence of how Americans are already seeing the very real benefits of the Affordable Care Act.”

Sebelius also touted health reform’s projected positive impact on the overall financial soundness of Medicare. “From strengthening the long-term future of Medicare as evidenced by the recent Medicare Trustees report, to saving seniors and the disabled money on everything from prescription drug costs to preventive services,” she pointed out, “the Affordable Care Act is helping to preserve and protect Medicare.”

This year millions of Medicare beneficiaries have received or will receive a $250 cash payment to cover expenses incurred after falling into the “donut hole.” In 2011, as a result of health reform, beneficiaries will receive a 50 percent discount on brand name drugs in the “donut hole” and generic drug prices will also fall substantially.

In 2013, drug prices will fall faster. By 2020, the “donut hole” will be closed and beneficiaries will pay only 25 percent of the cost of their drugs, as now mandated under Medicare.

Critics of the Republican-authored Medicare privatization law also noted that it was intended to shift billions in federal tax dollars to private insurance companies, force low-income seniors to pay more out-of-pocket expenses, and create long-term financial problems for the popular Medicare program. Health reform addressed many of these concerns. In addition to eliminating the “donut hole,” the law removes some of the costliest privatization schemes.


Stella Johnson speaks about impact of donut hole on her health care costs.


Joel Wendland-Liu
Joel Wendland-Liu

Joel Wendland-Liu teaches courses on diversity, intercultural competence, migration, and civil rights at Grand Valley State University in West Michigan. He is the author of The Collectivity of Life: Spaces of Social Mobility and the Individualism Myth, and a former editor of Political Affairs.