How to Make the Best of the Medicare 'Donut Hole'

Joseph P. Williams

The Medicare prescription drug "donut hole" -- the difference between what a beneficiary has to pay for after reaching the initial coverage limit and the amount the government pays for "catastrophic" drug coverage -- is quickly closing.

Thanks to reforms under the Affordable Care Act, seniors who are covered under Medicare Part D will pay less for prescription drugs in 2014 than they did last year, and the premiums for prescription drug coverage is also less expensive than it was in 2013. Since health care reform was enacted in 2010, the federal government reports Medicare recipients have saved more than $7 billion in prescription drug costs alone, an average of more than $1,000 per person.

[READ: How Medicare Beneficiaries Can Save Money on Prescription Drugs]

But until 2020, when Medicare Part D gets rid of the $1,400 drug payment restrictions, beneficiaries should continue to mind the gap.

Government officials, private insurers and Medicare experts say that means seniors should review their coverage during the Oct. 15-Dec. 7 Medicare Open Enrollment period, with an eye towards any changes in their current policies -- and checking out whether another available plan might better suit their pharmaceutical needs. Moreover, despite improvements in drug coverage and lower across-the-board expenses, Part D enrollees should still take common-sense steps to make their drugs even cheaper, and keep more money in their pockets.

"The drugs won't be free, but they'll easily be less expensive" than before health care reform, says Juliette Cubanski, assistant director for the Program on Medicare Policy with the non-profit Kaiser Family Foundation. "That additional financial assistance has been very valuable for people,"

Earlier this year, Health and Human Services Secretary Kathleen Sebilius declared that reforms to Medicare Part D coverage, mandated by the Affordable Care Act, has saved those over age 65 roughly $7 billion since 2010, the year the phased-in changes began. She credited the law, more popularly known as Obamacare, with creation of a "competitive and transparent" marketplace that's driving costs down for the government as well as for consumers 65 and older.

"Medicare is much stronger as a result of the health care law," she said in an announcement earlier this year.

[READ: What's the Difference Between Medicare and Medigap?]

Indeed, the federal Center for Medicare Services, a division of the Department of Health and Human Services, reports there's been historically low levels of growth in Medicare spending during the last three years. Medicare spending per beneficiary grew at 1.7 percent annually, more slowly than the average rate of growth in the Consumer Price Index, and substantially more slowly than the per capita rate of growth in the economy.

The Medicare Part D premiums and out-of-pocket costs for beneficiaries are also down for the fourth straight year, according to the Center.

The average Medicare Part D monthly premium will remain steady at about $31, and the deductible will fall to $310 in 2014, down from $328 last year. The initial drug-coverage threshold limit for 2014 is set at $2,850, down $120 from 2013, and seniors who fall in the "donut hole" will get a bit of a lifeline - catastrophic drug coverage for next year begins at $4,550, down from $4,750 in 2013.

But the best way to get the most bang for the buck is for seniors to take matters into their own hands.

The tricks for saving money on prescription drugs "are the same as they've always been," Cubanski says, starting with an enrollee's careful review of his or her prescription drug plan -- even if the coverage was satisfactory last year. Though it's government-subsidized care, private insurers who provide the plans are free to change them year-to-year, and coverage for some drugs may have shifted or become more expensive.

"Absolutely," says Paula Muschler, a manager with Allsup Medicare Advisor, a private health insurance consulting firm. "We get a lot of people who come back and use our services every year because they want to be sure they're in the best drug plan for their coverage."

[Read: What You Need to Know About Medicare Open Enrollment]

While drugs under some plans may have gotten pricier, Muschler says, others may have come up with new strategies or formed partnerships with pharmacies or drug manufacturers to hold the line or bring costs down. Reviewing a policy now, during the open-enrollment period -- the proverbial ounce of prevention, Muschler says -- can prevent an unpleasant surprise at the pharmacy counter next year.

"Many plans now have what are called 'preferred pharmacies,'" which offer cheaper brand-name medications that in turn lead to greater out-of-pocket savings, she said. The catch: if you don't use that option, you could pay more for a drug you need to take.

Cubanski agrees: Seniors "might find some drugs at a lower cost" under another coverage plan, she says. "Although some people might be satisfied with their plan, they may be leaving some money on the table."

With all the confusion over the Affordable Care Act, seniors who decide to change plans should be careful: They don't need to participate in state health-care exchanges, which are designed for people without health insurance. Medicare counts as health care coverage, therefore seniors who participate aren't subject to the health-insurance mandate or penalties for lack of coverage.

Another smart move: Scheduling meeting with your primary care physician for a review of your prescription drug regimen, Cubanski says.

Sometimes, a patient becomes accustomed to taking a particular drug out of habit, unaware that his or her body may have adapted, making the drug less effective. In that case, Cubanski says, a physician can recommend a cheaper brand or a generic alternative; he or she might have a supply of free samples on hand, or could suggest ending that prescription entirely.

"If you're taking a lot of [prescription] drugs, maybe you don't need to be taking them anymore," she says. "It's important to step back and look at the entire prescription drug regimen. It may involve scaling it back some."

The CMS also suggests seniors consider buying drugs in bulk -- a 30-day supply, for example -- or shop online from approved mail-order Internet distributors. Additionally, big-box retailers like Costco or Wal-Mart can offer deeper discounts than a standard corner drugstore, and most insurance company web sites or advocacy groups like AARP offer more helpful hints for saving money. Cubanski said the bottom line is relatively simple: a few easy steps, combined with research and comparison shopping, can help seniors keep more of their money in the long run.

"It may be daunting to look at 20 plans, but has some important tools that can help," she said. And now that Open Enrollment time is here, she added, Medicare Part D recipients should "use these devices as a first choice, not a last resort."