Although many provisions of the recently enacted health care reform package will not be felt for a few years, there are some benefits that begin in 2010, including the $250 tax-free "donut hole" rebate for seniors. This $250 rebate is intended to help seniors bridge the Medicare coverage gap. While many federal rebate-check programs are ending -- such as the Recovery Rebate Credit and Making Work Pay Credit -- the $250 donut hole rebate has just begun to be dispersed and an estimated 4 million seniors will receive the one-time $250 rebate, with more than 300,000 individuals having already received the check.

The $250 rebate checks are completely tax-free to recipients; they will not be included in income on your income tax form. The checks are mailed to Medicare beneficiaries who entered the Medicare Part D coverage gap (i.e. the "donut hole") during the second quarter of 2010 and are not eligible for Medicare Extra Help, or enrolled in a qualified retiree prescription drug plan. The donut hole is the period in the prescription drug benefit in which the beneficiary pays 100 percent of the cost of their drugs until they reach the catastrophic coverage phase.

The "donut hole." Medicare Part D provides prescription drug benefits to qualified individuals. The benefit carries a $310 deductible. After qualified seniors have spent $310, they pay 25 percent of the cost of their prescription drugs until the total cost of all medicines they receive in a year hits $2,830. After this amount is reached, qualified seniors pay 100 percent of the costs of their prescription drugs until the total cost of medicines reaches $6,440. The gap that Medicare does not cover is referred to as the "donut hole."
Rebate checks. Medicare Extra Help is intended to provide seniors with assistance so that they do not experience higher costs or a coverage gap in their prescription drug coverage. Qualifying Medicare beneficiaries who entered the donut hole in the first quarter of 2010 who were not eligible for Medicare Extra Help received a check in the first round of rebates mailed June 10th. Going forward, a check for qualifying beneficiaries newly reaching the donut hole in 2010 will be mailed monthly.

The Department of Health and Human Services (HHS) announced that next round of more than 300,000 eligible seniors who entered the Medicare Part D "donut hole" this year have been mailed their tax-free $250 rebate check. The first round of checks was distributed in the middle of June 2010. As qualifying Medicare recipients "fall into the donut hole," they will be sent a rebate check by Medicare.
Health care reform. While the health care reform package does not immediately close the donut hole, it provides the $250 rebate in 2010 and, beginning in 2011, qualified seniors affected by the Medicare gap will receive a 50 percent discount on brand-name prescription drugs. The Medicare share of costs will increase gradually so that the donut hole will close in 2020. HHS estimates that the typical senior who hits the donut hole will save over $700 in 2011 and more than $3,000 each year by 2020.

If you have questions about the $250 donut hole rebate, please contact our office.