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Medicare beneficiaries who enter the prescription drug coverage gap (known as the "Donut Hole") anytime before the end 2010 should receive a one time $250 rebate check from Medicare.  The first checks, for people who hit the Donut Hole by March 31, 2010, should arrive around June 10, according to Secretary of the Department of Health and Human Services, Kathleen Sebelius (the Secretary).[1]  The Center for Medicare & Medicaid Services (CMS), the agency that administers Medicare, estimates that about four million individuals will receive such checks this year.

This Alert discusses this 2010-only rebate program that was included in the Affordable Care Act passed by Congress and signed by President Obama earlier this year.[2] It also briefly describes the Act's provision that will close the Donut Hole over a number of years, beginning in 2011.  A more detailed Alert on that subject will be published later this year.

Current Law and the New Donut Hole Rebate for 2010

Through the end of 2010, if beneficiaries enter the Donut Hole, they have to pay 100% of the cost of covered drugs until they reach the catastrophic threshold, at which point cost-sharing is reduced to $2.50 (generic)/$6.30(brand name) or 5% co-insurance, whichever is greater.[3]  In essence, the benefit structure for Part D remains the same this year as it has been since Part D first went into effect in 2006.

The Affordable Care Act takes a small step to mitigate the effects of the Donut Hole in 2010 by providing a one-time $250 rebate check to anyone entering the gap.  Although the law itself gives the Secretary about two-and-a-half months after the end of the quarter in which the individual enters the gap to get the rebate check out, the Secretary and CMS are expecting checks to go out monthly, shortly after an individual enters the Donut Hole.  Generally speaking, individuals should receive their checks within 45 days of entering the Donut Hole.

Important points to remember about the one-time rebate program are:

• Beneficiaries do not have to sign up for the one-time $250 rebate check or take any particular steps other than to have incurred Part D prescription drug costs that have landed them in the Donut Hole for 2010. 

• In determining whether a beneficiary is eligible for the rebate check, Medicare will review records sent from the beneficiary's pharmacy to his/her Part D prescription drug plan.

• The rebate checks will come from Medicare and not from an eligible beneficiary's prescription drug plan.

• The rebate checks are not available to anyone receiving "Extra Help," that is, the Part D Low-Income Subsidy, because those individuals never have a gap in their Part D coverage.

CMS' Consumer Brochure on the Donut Hole Rebate

CMS has created a consumer brochure in English and Spanish describing the rebate program.[4] The brochure emphasizes the ease of getting this rebate: the beneficiary does not need to take any action to get the rebate.  Highlighted in the brochure is CMS's warning "Don't give your personal information to anyone who calls you about the $250 rebate check."  It encourages the reader to report anyone who seeks such information by calling 1-800-MEDICARE. (TTY users should call 1-877-486-2048.)  According to a recent e-mail from CMS, the envelope in which the check is mailed "will have the US Department of Health and Human Services symbol on it and will say 'Medicare Part D.'  Beneficiaries don't need to provide any personal information.  They don't need to provide any personal information like Medicare, Social Security, or bank account numbers to get the rebate check."  (emphasis added)

The $250 is not taxable.  CMS has not issued guidance on whether its value is counted in determining eligibility for public benefits.  Nor has CMS issued a clear statement to nursing facilities, as it did with stimulus checks mailed out under authority of the Recovery Act last year,[5] that the checks belong to nursing facility residents who have the right to determine how the money is spent. Another unresolved question relates to whether the amount is protected from recoupment by creditors who have judgments against a recipient after it has been deposited into a bank account.

The checks will be mailed (not deposited electronically into bank accounts) to the individual beneficiary at the address that the Social Security Administration (SSA) has on record. Beneficiaries should know when they have entered the Donut Hole by the monthly Explanation of Benefits sent by their Part D plan.  If they do not receive the check within about 45 days of entering the Donut Hole, they should check with their plan to see if it has sent the information to CMS and check with SSA to be sure it has the correct address.  If the answers from both are yes, they should call 1-800-MEDICARE.

Closing the Donut Hole

Beginning in 2011, the Donut Hole will slowly shrink:

• Beneficiaries will get a 50% discount on brand-name and biologic prescription drugs purchased while in the Donut Hole in 2011.

• Starting in 2013, the federal government will gradually add to the discount so that by 2020, beneficiaries will be paying no more than 25% of the cost of brand-name and biologic prescription drugs while in the Donut Hole.

• Beneficiaries purchasing generic prescription drugs will get a 7% price-cut starting in 2011. By 2020, the federal government will cover 75% of the cost of these drugs.

• Thus, by 2020, the Donut Hole will disappear for all drugs, both generic and brand name. It is important to note that the discounts do not affect a beneficiary's ability to qualify for Part D catastrophic coverage if the actual costs of the individual's drugs are high enough to reach that level.

For more information, contact attorney Patricia Nemore (pnemore @ medicareadvocacy.org) in the Center for Medicare Advocacy's Washington, DC office at (202) 293-5760.