How does this Donut Hole really work?

Dec 20, 2018

The Coverage Gap or Donut Hole (or Doughnut Hole) has caused a considerable amount of confusion for many people when they suddenly are required to pay a higher price (or before 2011, the full price) for their prescription medications. The following brief overview is based on the 2019 Medicare Standard Benefit Plan Model. Quick OverviewHere is a quick overview of the Donut Hole or Coverage Gap.

  • According to the Centers for Medicare and Medicaid Services (CMS) the Standard Medicare Part D Prescription Drug Plan, the Donut Hole phase of your Medicare Part D coverage begins when your total retail drug costs reach $3820. (In past coverage years, some Medicare Part D plans have implemented a different Initial Coverage Limit and have begun the Donut Hole phase a little earlier – perhaps at a total retail drug spending of $1800.)
  • Please note, this $3820 is the total retail cost of the covered medications, not what you spend personally at the pharmacy. As a Medicare Part D beneficiary, you will pay only a portion of the $3820 and your Part D plan pays a portion. Your total retail cost of prescription medications is calculated from your Medicare Part D plan’s negotiated retail drug price – and every Medicare Part D plan can have a different negotiated retail drug price. So it is possible that you may reach the Donut Hole a little earlier or later than someone else who uses the exact same prescription medications, but this other person has enrolled in a prescription drug plan from another Medicare Part D plan provider.
  • As a note, in the CMS model Medicare Part D plan, a beneficiary; like yourself, pays the first $415 dollars as an initial deductible and then is responsible for paying 25% of the next $3405, for a total out of pocket medication costs (or true out-of-pocket costs -— TrOOP) of $1266.25 (excluding your monthly plan premiums).
  • Again, following the CMS standard model Medicare Part D plan, when you reach the Donut Hole, your Medicare Part D plan will have paid the difference between the negotiated retail cost of all your drug purchases and your out of pocket cost or $2553.75.
  • However, most people simply say that you enter the Donut Hole phase of your Medicare Part D plan at the end of your Initial Coverage phase or when your reach your Medicare Part D plan’s Initial Coverage Limit (again, around $3820).
  • With changes in the Medicare law, a $250 Donut Hole Rebate program was implemented in 2010. Anyone who reached the 2010 Donut Hole was automatically mailed a check for $250. Click here to read some frequently asked questions about the 2010 Donut Hole rebate.
  • The 2011 Donut Hole marked the beginning of an effort at closing the Donut Hole. In 2011, anyone reaching the Donut Hole received a 50% discount on brand-name formulary drugs and a 7% discount on all generic formulary medications.
  • In 2019, anyone reaching the Donut Hole will receive a 75% discount on brand-name formulary drugs and a 63% discount on all generic formulary medications. So for your brand-name drug purchases, you will pay only 25% of the retail cost, but receive 95% credit toward meeting your Donut Hole exit point or TrOOP. For generic drug purchases, you pay 37% of the retail cost and receive the same 37% credit toward TrOOP. 
  • You will stay in the Donut Hole until your TrOOP (True Out-of-Pocket) costs reach $5100.
  • If you still have questions about the Donut hole please contact me it would be my pleasure to assist you.