The Donut Hole and Other Messy Issues

The trouble with expensive healthcare issues seems to be that people think of it as a social cost that burdens society until they are faced with the hard costs of a big medical emergency or the slow drain of a lifetime of taking expensive prescription drugs. I guess these folks could just opt to roll over and die, but there is a cost to longer life expectancies… the medicines and procedures that keep us alive are very expensive, which is literally at the heart of the various healthcare reform solutions being bandied about in Washington these days.

The Democrats have proposed a combination of private and public healthcare plans that, in theory, should cover 95% of Americans. The plan was short of specifics, there are hints that this would cost the U.S. $1.6 trillion new dollars over ten years, but here is what the broad strokes would be per the June 20th NY Times: “The proposal would establish a new public health insurance plan to compete with private plans. Republicans and insurance companies strenuously oppose such an entity, saying it could lead to a government takeover of health care. The draft bill would require all Americans to carry health insurance. Most employers would have to provide coverage to employees or pay a fee equivalent to 8 percent of their payroll. The plan would also end many insurance company practices that deny coverage or charge higher premiums to sick people… The bill would impose a new ‘tax on individuals without acceptable health care coverage.’ The tax would be based on a person’s income and could not exceed the average cost of a basic health insurance policy. People could be exempted from the tax ‘in cases of hardship.’”

Over time, gaps in Medicare – which materially impacts our seniors – would be filled as well… particularly the legendary “donut hole” of huge mega-payments for those with significant drug need. The June 27, 2008 ConsumerReports.org explains the donut hole: “[A] large gap that exists in the middle of most Medicare prescription drug plans (PDPs), officially known as Medicare Part D. A standard PDP typically requires the beneficiary to pay an initial deductible, $275 this year, after which the plan starts picking up 75 percent of the cost of approved prescription drugs—but only until the consumer’s annual drug bill reaches $2,510… The consumer then has to pay 100 percent of prescription drug costs until a second annual threshold of $5,726 ($4,050 out of pocket) is met. Once the consumer’s annual total drug bill surpasses $5,726, the PDP and Medicare typically pay a combined 95 percent of drug costs from there on. Specifically, the doughnut hole refers to the gap in coverage that exists between those two spending thresholds, where the consumer has to pay 100 percent of the cost of approved prescription drugs.”

Add this “hole” to services that insurance companies exclude in the fine print, the policies they cancel when the policy-holder is really sick and what happens when someone uses up their lifetime benefits (yes, there is an overall cap!) and you have financial disaster. Even prudent consumers, those who did not over-borrow to support a lifestyle about their apparent means, get sucked up into the unforeseen vortex of bankruptcy. Add job loss or companies’ cutting healthcare out of their benefits package because of cost, and the obvious chaos to the lives of many becomes even more glaringly apparent.

The National Coalition on Health Care Reform reports that while 68% of those Americans filing for bankruptcy had health insurance, 50% of the total filed in material part because of healthcare costs. When you have a huge medical cost, it tends to be big, sudden, exceptionally harsh and unexpected. So as we approach this complex issue, watch the potential of higher social taxes, perhaps there should be a touch of basic empathy in those who are choosing to support or deny such benefits or to fill the holes where lack of coverage can destroy a family.

The pharmaceutical industry has agreed to help seniors fill the hole part of the way: “U.S. drug makers agreed [June 20th] to shell out $80 billion over the next 10 years to lower the cost of medication for seniors and help pay for President Obama's proposed healthcare overhaul, as part of an agreement hashed out with lawmakers and administration officials.” June 20th, Los Angeles Times. But the hole needs a lot more filling to make a big difference.

I think we’d all like the benefits accorded to those in the Senate and the House, but picture yourself in a healthcare emergency… finances drained by the unexpected. How would you like to be treated? Popular support seems to be growing; a CBS/NY Times poll (reported in the NY Times on June 20th) notes: “The national telephone survey, which was conducted from June 12 to 16, found that 72 percent of those questioned supported a government-administered insurance plan — something like Medicare for those under 65 — that would compete for customers with private insurers. Twenty percent said they were opposed.” Lots of legislators are swallowing hard as they balance empathy against staggering costs… healthcare reform isn’t easy; it may not even be just around the corner as many (including the President) believe, but one way or another, it seems inevitable.

I’m Peter Dekom, and I approve this message.