SPECIALIZING IN MEDIGAP MEDICARE ADVANTAGE, & PRESCRIPTION DRUG PLANS
The Medicare Part D donut hole is just a term coined by ordinary people for the stage of Medicare Part D that is officially called the coverage gap. The reason they call it the Medicare donut hole is because it’s a hole in the middle of your drug coverage during a calendar year.
All Medicare Part D plans have 4 stages and the third stage is the Donut Hole. However, you may have heard about the Medicare Donut Hole ending in 2019. The reason people say that the donut hole is ending is because the percentage that you will pay for brand name drugs in gap is now set at 25%, and that’s the same maximum percentage that you would pay in the initial coverage level prior to reaching the gap.
Confusing, right? Keep reading and we’ll break it down for you.
The Medicare Part D donut hole is a stage in every drug plan where your coinsurance for your medications is higher.
The Medicare Donut hole is a gap inside of your Part D plan. It is a period of the year when your medication costs can be higher than they were prior to you reaching the donut hole.
Congress designed Part D so that it would provide coverage for the majority of your prescription drugs. However, a small percentage of people have medication costs that go well beyond average spending. Part D was designed so that those people would then share in a greater portion of the costs for their medications when they enter the coverage gap.
Medicare designed the gap to encourage beneficiaries, whenever possible, to seek generics or drug alternatives that are lower in cost. This has helped a great deal to keep the total costs for the Part D program as low as possible.
So, when does the donut hole end? It’s already closing as you read this.
Since the Affordable Care Act passed back in 2010, the donut hole has been slowly closing. It used to be that when you hit that point, you would pay 100% of the costs of your prescription drugs while you were in the gap.
However, the government has been reducing that percentage steadily, and as of 2019, the percentage of cost that you pay for brand name prescriptions is no more than 25% before the gap AND in the gap. Generic drugs can still be slightly higher in the gap but as of 2020, they will also be at 25%.
The coverage gap starts after the combined spending by you and your insurance company reaches a certain annual limit. Medicare sets this limit each year. In 2019, the gap begins when your drug cost reaches $3,820.
Before you reach the gap, you will normally pay copays for each medication. After you reach the gap, you will pay a percentage of the cost of each medication. If the medication has a high retail price, this may mean your costs for the medication will increase while you are in the gap.
In 2019, you pay 25% of the cost of your brand-name medications and 37% of generics once you reach the Medicare donut hole. So if a certain medication costs $100, and you were paying a Tier 3 copay of $30 before you reached the gap, the same medication will now cost you $25 when you are in the gap.
You will also have a discount on generic medications. Some plans will continue to offer you copays in the gap for generic medications as an added value for that plan.
Medicare continues to tally the spending between you and your insurance company while you are in the gap. If your total out of pocket drug expenses reach $5100 in 2019, then you exit the gap. You reach the fourth stage of Medicare Part D, called catastrophic coverage. At this stage, you will pay no more than 5% of the cost of your medications for the rest of the year. The insurance company picks up the rest.
Some medications fall outside of Part D altogether, and therefore do not get tallied toward the Medicare donut hole. See our list of medications not covered by Part D for more information on that.
While the coverage gap can be painful, it’s important to remember that, just a few years ago, there was no prescription drug program for Medicare beneficiaries. Medicare Part D has greatly helped to reduce drug spending for millions of Medicare recipients.
Most Part D carriers negotiate discounted drug rates with pharmaceutical manufacturers, too. You get the benefit of these discounts just for being a plan member.
When you are in the gap and paying 25% of brand-name drugs, your spending counts toward exiting the gap. The manufacturer’s drug discount of 70% also counts and will help you exit the gap faster.
There are two things, though, that don’t count toward closing the gap.
Keep in mind that there are other things that don’t count toward reaching the catastrophic limit, which are your plan premium and also what you spend on any drugs that aren’t covered by your Part D plan.
Your Part D company sends out a statement, or explanation of benefits (called an EOB), each month. This statement tells you exactly how much you have already spent on covered medications and how many dollars are left before you reach the coverage gap. Likewise, after you reach the gap, your insurance company will continue to send you notices that track your gap spending. They will calculate how many dollars are left before you reach catastrophic coverage.
The donut hole ends when you reach the catastrophic coverage limit for the year. In 2019, the donut hole will end when you reach $5100 out of pocket in one calendar year. That limit is not just what you have spent but also includes the amount of any discounts you received in the donut hole. So your out-of-pocket will be somewhat less than that.
So how do you get out of the donut hole? Unfortunately it’s by paying for medications through the donut hole until you reach catastrophic coverage level.
No. The Part D coverage inside of a Medicare Advantage plan works exactly the same way that standalone Part D plans works. Some Part D companies and Medicare Advantage companies might offer coverage of certain medications in the gap.
However, this is almost always coverage of generic medications and rarely brand name medications. This doesn’t really help a great deal since the drugs that cost so much in the coverage gap are brand name drugs, usually not generics.
There is no such thing as Medicare Part D plans with no donut hole, so you have to just do your best to stay under the threshold. The best way to avoid the donut hole is to take generic medications whenever possible. You can also work with your doctor on reducing your drug spending.
Show your doctor which drugs are costing you the most on your Part D plan, and see if he can recommend any cheaper alternatives. Some medications may not have a generic equivalent on the market yet, but there may be other similar medications that are cheaper that achieve a like result.
As we mentioned above, 75% of the cost of your drugs is the bare minimum that your plan must cover during the Initial Coverage Level stage and the Coverage Gap stage. However, many Part D drug plans voluntarily choose to do better than this in Stage 2 Initial Coverage Level.
Example: it’s possible that a drug with a $100 retail price might have a $10 copay during the Initial Coverage Level. Then when you reach the gap, the cost of that drug may revert to the standard minimum of 25%.
This should still be looked at as a WIN. You enrolled with a carrier that gives you the standard 25% coinsurance during the gap but adds even more value by giving you an even lower copay during the earlier Initial Coverage stage.
Either way, the 25% that you pay for brand name drugs in the gap is still the lowest cost for brand name drugs in the gap that plans have ever been required to give you. This means that the Medicare donut hole ending is a good thing.
Sometimes people ask us if their Medigap plan will cover the coverage gap in their drug plan. The answer is no. Medigap plans help to pay for inpatient and outpatient services only. Drugs fall separately under Part D.
Every year we have clients ask us to help them find a Part D drug plan with no coverage gap. Such a plan does not currently exist in most states. The are no Medicare Part D plans without the donut hole. There is no separate insurance plan that you can buy to cover you in the Medicare donut hole either.
However, certain people with low incomes and limited assets may qualify for the low-income subsidy, called Extra Help for Part D. If you qualify, then Medicare will waive the gap for you. Also your ordinary copays on your prescriptions will decrease quite a bit. You can apply for the subsidy at your local Social Security office or online at their website.
Since Medicare tallies the Total Cost of your medications toward the Medicare Donut Hole , you should know the full cost of each drug you are taking. Fortunately, this is easy to do by reviewing your statements from the insurance company.