Other beneficiaries have underestimated the size of the coverage gap. They incorrectly believed that it would run from $2,250 to $3,600, the figures emphasized in brochures published by the government and insurance companies.
In fact, the coverage gap is twice as large as those numbers would suggest. The $2,250 is a measure of total drug spending. The $3,600 is a measure of out-of-pocket costs; it corresponds to about $5,100 in total drug spending. Under the standard benefit, a consumer is personally responsible for $2,850 of drug spending in the coverage gap — the amount from $2,250 to $5,100.
If I understand this, the initial coverage is calculated on the cost of the medications that a consumer receives. What the consumer pays does not matter. While the initial amount of $2,250 was set there because that was the average cost paid by Medicare consumers for medications prior to the introduction of this benefit, the program is not counting consumer cost but cost to the program for medications. That means, of course, that those with only average or below average medication needs might save some money on the program--if premiums and co-pays do not exceed what they paid for medications in the past. With a 25 percent co-pay, this first segment of coverage involves consumers paying $562.50 for $2,250 in medications, plus the monthly cost of premiums.
For those with "above average" medication needs, say someone with HIV, the program counts the cost of medications up to $2,250--not counting premiums and co-pays--and then counts out-of-pocket expenses--premiums, co-pays, medication costs--in the gap before beginning catastrophic coverage. The co-pay is 100 percent of $2850 in medications, plus the cost of monthly premiums.
The total that the consumer would pay in drug costs prior to catatrophic coverage is apparently $3,412.50. Is the remainder the estimated cost of premiums? What a cockamammy program!