Where did the Part D donut hole come from?

(cross posted at freeforall)

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 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 the sloppiness.

Author: Don Taylor

Don Taylor is an Associate Professor of Public Policy at Duke University, where his teaching and research focuses on health policy, with a focus on Medicare generally, and on hospice and palliative care, specifically. He increasingly works at the intersection of health policy and the federal budget. Past research topics have included health workforce and the economics of smoking. He began blogging in June 2009 and wrote columns on health reform for the Raleigh, (N.C.) News and Observer. He blogged at The Incidental Economist from March 2011 to March 2012. He is the author of a book, Balancing the Budget is a Progressive Priority that will be published by Springer in May 2012.

13 thoughts on “Where did the Part D donut hole come from?”

  1. Did you proofread this piece before hitting the Publish button? It contains many spelling and punctuation errors and does not scan as written. I’m happy to invest time to understand your ideas if you will invest time to express them in coherent prose. I have not read anything at TRBC this sloppily written.

  2. I never thought the doughnut (is that spelling now history?) hole was a terrible idea. It’s basically a tricky sort of deductible with some pluses and minuses, one of which is complexity.

    1. > the doughnut (is that spelling now history?)

      I tested this out with Google Ngram Viewer, and it appears that “donut” was rarely used until about 1940, and then rapidly took off in popularity. British English is much less likely to use the shorter form than is American English. However, every corpus for every year still shows “doughnut” as the more popular.


      The Google Ngram viewer only looks at books. Perhaps, I thought, other media show a different distribution. I tried a Google web search, enclosing the search arguments in quotes:

      “doughnut” about 17,000,000 results

      “donut” about 52,800,000 results

      So, based on my quick Google searches, in books “doughnut” still predominates, but “donut” is catching up fast.

      On the web, however, “donut” is the undisputed ruler.

    1. I’m sure if you Google for articles about “undercover journalists” reporting on Tea Party rallies from “behind the scenes” you’ll get a good understanding. (Taibbi has written a lot about the “rejecting reality” phenomenon.

      Everyone remembers the signs they carried decrying “big Government” such as “Get your Big Government hands off my Medicare.” When approached and offered irrefutable evidence to the contrary the standards responses were:
      1. blank stare
      2. “you’re lying
      3. Commie

      At $300,000,000 Limbaugh is underpaid

    2. Obviously I’ve no idea why Don’s mother-in-law didn’t believe her.

      I went through a similar issue with my mother-in-law, but in 2007. She knew that the doughnut hole was there, because it was there in black and blue and white. She asked me which idiot thought that up, and why. I told her it was Bushie’s minions, and it was thought up to limit the budget impact of Medicare Part D. She didn’t believe me, so I gave her a bunch of news references.

      She believed me after she read them. She also said it’s one of the stupidest things she’s ever seen. She picked up on the provisions forcing Medicare to pay full retail price, and asked a really cogent question. “What would the budget impact have been if Medicare had been allowed to negotiate prices?”

      By the way, this converted her from R-leaning independent to committed Democrat.

    3. Basically she starts from the notion that Pres. Bush is a great guy and a great President and the President Obama is roughly the opposite. She got that the structure didn’t make sense, but just had trouble believing that it hadn’t been pres Obama who had thought it up, and she definitely had trouble with the idea that the ACA had benefitted her directly. Every problem she has with any doc, etc now is due to Obamacare, etc. I spend some time trying to talk through things in a similar way Dennis notes below, but there are only so many hours in the day and it is better for me to try and have as good a relationship with my mother in law as possible, so at some point it is non productive for me to continue with her. I don’t believe that I will convince her. The other day she was complaining about (1) overspending by the federal govt and (2) how much out of pocket stuff she has to pay for even though she is covered by Medicare…

  3. The Donut Hole is a catch 22 for the financially strapped. It is like giving someone enough water to get halfway across a desert. ‘Don’t worry, there’s plenty of water on the other side.’
    But of course the whole Medicare part D is like that. I’m no policy student but my sister (mother of a special needs child) is a veteren of wending her way through beaurocratic health care systems. She was tearing her hair out trying to get herself and our mom’s insurance straight. The whole thing was nothing but making impossible choices based on predicting future needs and weighing tradeoffs with unknowable outcomes.
    The whole program was designed to sink Medicare as we know it while making insurance companies fatter. On that score it has been quite a success. Another part of the never ending legacy of the GW Bush administration.

  4. The most interesting moment when you are trying to help someone understand something that they don’t want to believe — no, Obamacare didn’t cause the donut hole, no, social security is not a Ponzi scheme, or whatever — is when you almost succeed.

    I’ve experienced this a few times. You can see the look on their face, of growing astonishment, and then, in a flash, their face tightens and everything in them shuts down and you are told no, you are wrong!

    I guess a lot of people are just complete wimps in the face of cognitive dissonance.

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