Beneficiaries who rely on Medicare for prescription drugs can breathe easy: The Supreme Court upheld the Affordable Care Act (ACA) and seniors will continue saving billions on drugs.

Chief Justice John Roberts was the decisive vote in a 5-4 decision that ruled President Obama’s controversial health care law constitutional.

With the law upheld, seniors in the Medicare Prescription Drug Plans (Part D) coverage gap, more commonly known as the “donut hole,” will continue receiving the discounts the government negotiated with pharmaceutical manufacturers when the law was drafted in 2009.

Manufacturers voluntarily agreed to provide $80 billion over 10 years in prescription drug discounts for beneficiaries in the donut hole. These discounts, coupled with federal subsidies, close the coverage gap by 2020.

“Johnson & Johnson supported enactment of coverage under [the ACA], and we believe this law has the potential to help more patients gain access to high-quality, affordable care and innovative treatments," Bill Price, a company spokesman for Johnson & Johnson, the largest pharmaceutical manufacturer, said. 

Sarah Alspach, spokeswoman for GlaxoSmithKline, said, "The Court's ruling removes some uncertainty about the implementation of the Affordable Care Act. GSK has been and will continue to work with policymakers, health care professionals and payers on the implementation of the law, and to promote policies and regulations that prioritize quality, reward value and ensure access to medicines."

The Pharmaceutical Research and Manufacturers of America (PhRMA) released a written statement that said that the PhRMA community respect the Court's decision and will continue to be part of the conversation about the future of health care in America. 

Many individual manufacturers, including Pfizer and Abbot Laboratories, the second and third largest pharmaceutical manufacturers based in the United States, deferred to the PhRMA remarks on the ruling. 

The donut hole was built into Part D to keep costs from skyrocketing. Seniors pay 25 percent of the cost of drugs out of pocket until costs reach $2,930, after which they lose coverage and pay 100 percent of the costs. That is, until overall spending for the year hits $4,700 and catastrophic coverage kicks in to cover 95 percent of remaining costs.

The ACA gradually reduces out-of-pocket costs until they’re at 25 percent, the Part D standard, for both generic and brand-name drugs by 2020. (This year, out-of-pocket costs are 50 percent for brand-name drugs and 86 percent for generics.)

Seniors have already realized savings from the measure. From March 2010 through December 2011, seniors saved $3.2 billion on prescription drugs, according to the Department of Health and Human Services. In the first four months of 2012, they saved $301.5 million. In 2011, these discounts averaged out to $631 per person.

Nonprofit advocacy organization Families USA, in a written response to the decision, said, “Today’s Supreme Court ruling is a clear, unambiguous, and complete victory for long-overdue health care reform,” and that the continued closing of the donut hole should bring “peace of mind.”

 What’s Wrong With the Donut Hole?

For beneficiaries, a return to the donut hole could have been deadly, said Alan Sager, a professor of health policy and management at the Boston University School of Public Health.

Sager, who has studied the causes of high U.S. pharmaceutical prices, refers to the coverage gap as “the Black Hole of Death.”

“Because people get sick and when they enter the Black Hole and can’t afford needed meds, many older people on fixed incomes cease filling prescriptions and suffer harm and avoidable death,” Sager said.

Before Part D, nearly one-third of Medicare’s 43 million beneficiaries were without prescription drug coverage, according to Health Affairs. The bill that created Part D, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, went a long way toward providing coverage—only 10 percent of seniors remain without coverage—but to help contain costs, a controversial donut hole was built in. 

This was a problem. A Health Affairs study showed that when seniors reached the donut hole, there was a “meaningfully reduced dispensing of previously used essential medications.” Although the donut hole may have been a necessary provision of Part D legislation, the study concluded, their results suggest “that it mitigated gains in access to prescription drugs.” The study went further to say that health outcomes could be affected by the donut hole. 

“A sizable proportion of sicker patients reached the coverage gap in the first year and experienced a drop in the use of drugs they had used before reaching the coverage gap, which may result in worse health outcomes,” the study’s authors noted.

The ACA and the Low-Income Subsidy

In Part D, individuals with incomes below 150 percent of federal poverty line and with limited assets, a group that includes dual eligibles (those on Medicare and Medicaid), are eligible for low-income subsidies that pay for all or some of Part D premiums and deductibles, while limiting copayments to a nominal amount.

Appropriating $2.4 billion over ten years, the ACA attempts to make these plans more accessible in a few ways. The law: 
  • Postpones for one year the redetermination of eligibility after the death of a spouse; 
  • Eliminates cost-sharing for individuals getting care under Medicaid home- and community-based waivers who would otherwise be cared for at an institution (effective no earlier than Jan. 1, 2012); 
  • Improves the determination of Part D Low-Income Subsidy benchmark premiums, by excluding from the benchmark determination any reductions in premium amounts that are attributable to rebate or bonus payments to plans (already in effect); and
  • Gives many insurers the opportunity to enroll low-income beneficiaries, giving beneficiaries a better chance of finding a plan that fits their needs and, ultimately, less of a reason to switch plans from year to year.

The ACA and Other Part D Measures

In addition to gradually closing the donut hole and making low-income subsidies more accessible, the ACA includes a number of other provisions related to Part D. The law:

  • Reduces the premium subsidy for individuals with incomes above $85,000 and couples with incomes above $170,000;
  • Requires the HHS Secretary to develop and maintain a centralized system to handle complaints;
  • Gets rid of tax deductions for employers who receive retiree drug subsidy payments;
  • Allows payments from the Indian Health Service and AIDS drug assistance programs (ADAP) to count toward enrollees’ true out-of-pocket (TrOOP) threshold used to determine eligibility for catastrophic coverage under Part D;
  • Clarifies that Part D plans may waive the beneficiary co-payment for the first generic prescription filled to encourage use of lower-cost generic drugs without violating federal fraud and abuse provisions (effective on date specified by the secretary but in no case earlier than Jan. 1, 2011);
  • Enhances penalties for marketing violations by Medicare Advantage (Part C) and Part D plans (already in effect);
  • Increases penalties for submitting false claims and for failing to comply with investigations (already in effect), and
  • Unless new legislation is passed, Judith Stein said, the provisions related to the coverage gap, premium increases and others will no longer be in place.

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