Source: Arlene Weintraub, Business Week ( Free Registration )

For many older Americans, this is a bitter time of year with a deceptively sweet name: the “doughnut hole.”

It’s not a treat from the local bakery, but rather a coverage gap in the three-year-old Medicare Part D drug program. When Part D was first designed as a way to help elderly patients pay for their prescription drugs, the only way the federal government could afford it was to impose a yearly limit on what it would cover for each member. So once seniors consume drugs up to that threshold—it is $2,510 in 2008—they fall into the doughnut hole. They then have to pay fully out of pocket for their drugs until the end of the year, or until they’re eligible for catastrophic coverage, whichever comes first.

The doughnut hole has been a source of angst ever since Part D began in 2004. Now we know why: One way seniors deal with being in the hole is to stop taking their drugs. 

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