In mid-June, pursuant to the Patient Protection and Affordable Care Act of 2010, Medicare began sending one time, $250 tax-free rebate checks to Medicare beneficiaries who had reached the Medicare prescription drug coverage gap and are not already receiving Medicare Extra Help.[1]  The coverage gap occurs after the Medicare prescription drug plan and the beneficiary have reached the annual coverage limit ($2830 in 2010) and before the beneficiary reaches the catastrophic coverage limit ($4550 in 2010).  During this “donut hole,” the beneficiary has to pay all prescription drug costs out of pocket.  The federal Centers for Medicare & Medicaid Services (CMS) estimate that 4 million Medicare beneficiaries will reach the donut hole and qualify for the rebate this year.

Beneficiaries do not have to apply for the rebate.  Medicare will mail the checks automatically when its records demonstrate that a beneficiary has reached the coverage gap, regardless of whether the beneficiary has spent $250 after reaching the donut hole.  The monthly Explanation of Benefits sent by each Part D plan will notify the beneficiary when he or she has reached this coverage gap.  Beneficiaries should expect to receive the check within 45 days after they reach the donut hole.  If beneficiaries do not receive the rebate and believe they are entitled to it, they should call their drug plan to make sure the information has been submitted or 1-800-Medicare to check on the status of their payment.

This rebate is only the first step toward closing the coverage gap.  Pursuant to the health care reform law, in 2011, beneficiaries who fall into the donut hole and are not already receiving Medicare Extra Help will receive a 50% discount on brand name and biologic prescription drugs and a 7% discount on generic drugs.  The donut hole will be completely eliminated by 2020.

Some issues remain unresolved, While CMS has stated that the rebates are not taxable, it has not issued guidance on whether the $250 can be counted in determining eligibility for any public benefits or how the money will be considered for nursing facility residents on Medicaid.  Moreover, there is no clarity regarding whether the rebate, once it is deposited in a beneficiary’s bank account, is subject to garnishment by the beneficiary’s creditors.

Unfortunately, some scam artists are preying on beneficiaries regarding this rebate.  Some beneficiaries have been encouraged to pay a fee to apply for and expedite payment of the benefit despite the fact that there is neither an application process nor a process for expediting receipt of the rebate.  Under the guise of helping obtain the rebate, some individuals are also requesting that beneficiaries provide personal information including their Medicare and Social Security numbers and information about their bank accounts.