Digesting the doughnut hole

Abstract

Despite its success, Medicare Part D has been widely criticized for the gap in coverage, the so-called "doughnut hole". We compare the use of prescription drugs among beneficiaries subject to the coverage gap with usage among beneficiaries who are not exposed to it. We find that the coverage gap does, indeed, disrupt the use of prescription drugs among seniors with diabetes. But the declines in usage are modest and concentrated among higher cost, brand-name medications. Demand for high cost medications such as antipsychotics, antiasthmatics, and drugs of the central nervous system decline by 8-18% in the coverage gap, while use of lower cost medications with high generic penetration such as beta blockers, ACE inhibitors and antidepressants decline by 3-5% after reaching the gap. More importantly, lower adherence to medications is not associated with increases in medical service use.

Keywords: Coverage gap; I1; I13; I18; Insurance Design, Price Elasticity; Medicare Part D; Prescription Drugs.