What’s a Donut Hole, and How to Know Whether You’re in It!

Medicare Donut Hole

Mmm, donuts

If you get your prescription drug coverage through Medicare, then it is likely that you have heard the term “donut hole,” as it relates to these benefits and prescription drug out-of-pocket charges.

Medicare defines the donut hole as a gap in coverage that may exist after you and your Medicare prescription drug plan have spent a certain amount for your covered drugs and you then are required to pay all of your prescription medication expenses out of pocket – at least up to an annual dollar limit.

Although the donut hole doesn’t sound scary, hitting it will take a bite out of your wallet.  (See what I did there?  That’s punny!) Never fear!  Once you hit it, will eventually end and your prescription drug plan will pick back up and start to pay benefits for your covered drugs once again.

Regardless of whether you receive your Medicare prescription drug coverage through a stand-alone Medicare Part D plan or through a Medicare Advantage plan, you can still have a coverage gap. (Although in some cases, depending on the actual plan that you have, there is no coverage gap at all).

In addition, because both stand-alone Medicare Part D plans and Medicare Advantage plans are offered by private insurance companies, not all drug coverage is exactly the same – and in turn, when exactly Medicare enrollees reach their coverage gap can also differ from one plan to another.

For 2018, the Medicare prescription drug plan initial coverage limit is $3,750. This coverage gap ends once an enrollee has spent a total of $5,000 out-of-pocket for covered medication(s). Also for this year (2018), Medicare Part D enrollees will receive a discount of 65% on the total cost of brand name medications that are purchased while you are inside of the donut hole.

This includes a 50% discount that is paid by the manufacturer of the brand name medication – and it can also apply towards moving you forward to get out of the Medicare donut hole. (The additional 15% of the discount that is paid by your Medicare Part D plan, however, will not count towards this).

You are eligible for these savings if you have reached the Medicare Part D coverage gap, and you also:

Are currently enrolled in a Medicare prescription drug plan (which can include an employer group health and waiver plan), or in a Medicare Advantage Plan (such as an HMO or a PPO) that also includes prescription drug coverage,

and

You are not receiving Extra Help, a Medicare program that is designed for assisting those enrollees with limited income and resources to pay their Medicare prescription medication expenses.

In addition, while you are in the Medicare Part D coverage gap, you will also have a maximum 44% copayment on the generic medications that you purchase during that time. This equates to a 56% discount on these medications. Your copay here will also count towards your Medicare donut hole exit point.

Here’s an example: if you have reached the Medicare Part D donut hole for 2018, and you purchase a covered generic medication that has an initial cost of $100, then you would only be required to pay a maximum of $44 – and this amount would be counted towards filling in your coverage gap and reaching the other side of the $5,000 out-of-pocket limit for 2018.

Medicare Part D Standard Benefit Design Parameters:2018 Amount
Deductible - Once the deductible amount has been met, you would be required to pay 25% of the covered costs, up to the total prescription drug costs meeting the Initial Coverage Limit$405
Initial Coverage Limit - The coverage gap / donut hole begins at this point. You would be required to pay 100% of your prescription drug costs, up to the Out-of-Pocket threshold. $3,750
Out-of-Pocket Threshold - This is the amount of the total out-of-pocket costs, including the donut hole.$5,000
Total Covered Part D Drug Out-of-Pocket Spending, including the coverage gap. Your Catastrophic Coverage would start after this point.*$7,508.75*
Total Estimated Covered Part D Drug Out-of-Pocket Spending, which includes the coverage gap discount.**$8,417.60
Plus a 65% brand discount.
Catastrophic Coverage Benefit:
Generic / Preferred Multi-Source Drug***$3.35***
Other Drugs***$8.35***

*Total Covered Medicare Part D Spending at Out-of-Pocket Threshold for Non-Applicable Beneficiaries – Beneficiaries who are entitled to an income-related subsidy under section 1860D-14(a) (LIS).
**Total Covered Medicare Part D Spending at Out-of-Pocket Threshold for Applicable Beneficiaries – Beneficiaries who are not entitled to an income-related subsidy under section 1860D-14(a) (NON-LIS) and do receive the coverage gap discount. For 2018, the weighted gap coinsurance factor is 80.5286%.
***The Catastrophic Coverage is the greater of 5% or the values shown in the chart above. In 2018, beneficiaries will be charged $3.35 for those generic or preferred multi-source drugs with a retain price of under $67 and 5% of those with a retail price greater than $67. For brand-name drugs, beneficiaries would pay $8.35 for those drugs that have a retail price of under $167 and 5% for those with a retail price of over $167.

Each month in which you fill a prescription, your Medicare Part D drug plan will mail you a notice called an Explanation of Benefits, or EOB for short. This EOB notice will let you know how much you have spent so far on your covered medications, as well as whether or not you have reached the Medicare Part D coverage gap.

How to Delay Getting Into the Medicare Donut Hole

In order to delay reaching the Medicare Part D coverage gap, there are some things that you could do, which may in turn have the effect of lowering the cost of your prescription medications throughout the entire year. These could include the following:

  • Locate a local pharmacy that offers the prescription medications that you take at a discounted price
  • Discuss with your doctor the possibility of using lower-priced generic medication(s)
  • Switch to a mail order pharmacy that could save you money on your prescription(s)
  • Use the member card that is associated with your prescription plan when you are purchasing your medications,
  • as this could provide you with discounted rates, as well as count towards your Medicare Part D deductible amount
  • Inquire about any pharmaceutical assistance programs that may be offered in your state

There are some Medicare prescription drug plans that offer either partial – or even full – coverage during the coverage gap. For instance, there are some plan options that may not have a coverage gap at all, and other plans that may provide coverage for generic medications, even while you are in the donut hole.  There are also a lot Medicare Advantage plans that are adding separate deductibles on Tiers 3 and 4 but not on Tiers 1 and 2.  Read the fine print, as always.

It is important to note, though, that because of this additional coverage, the premium that you pay will oftentimes be higher for these plans. With that in mind, be sure that you consider all of your potential yearly out-of-pocket costs, including your plan’s premium.

Closing the Medicare Part D Coverage Gap

The Medicare Part D coverage gap is slated to end in the year 2020.  Until that time, it will gradually be narrowed. This means that if you are enrolled in a Medicare prescription drug plan, you could see some additional savings over the next few years.

Medicare Part D Drug Savings Through the Year 2020

Once the Medicare Part D coverage gap has gone away, though, all enrollees in Medicare’s prescription drug plans will have the same level of cost-sharing. This will be approximately 25%, from the time you have met your plan’s deductible, until the time that you reach catastrophic coverage.

In addition, your catastrophic coverage will still remain in place – even after the Medicare Part D coverage gap disappears. This coverage will begin when your total out-of-pocket prescription medication costs have reached a certain dollar amount. Then, once you have reached that point, you will simply have a copayment of 5%.

How to Learn More About Your Medicare Prescription Medication Benefits

For more details regarding the Medicare Part D donut hole, you can contact Medicare directly by calling, toll-free, 1-800-MEDICARE (1-800-633-4227). In addition, there are details available regarding Medicare prescription plans that can be found on Medicare’s website at www.Medicare.gov. You can also talk with a health insurance professional who specializes in Medicare plans.