Paul Barrett Insurance Services Blog
Medicare Donut HoleThe 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. There are NO Medicare Part D plans without the donut hole.
The Medicare Part D donut hole is a stage in every drug plan where your coinsurance for your medications is higher.
What is the Medicare Donut Hole?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.
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. Those people 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 helps Medicare to keep the total costs for the Part D program as low as possible.
How the Coverage Gap WorksThe 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 2018, the gap begins when your drug cost reaches $3,750. Before your 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.
dicare Part D Plans without the donut hole do not exist. Some plans may offer Tier 1 or 2 generics in the gap, but those aren’t the drugs that make the donut hole expensive. It’s always best to use the Medicare Plan Finder Tool recommendation for the most cost effective plans.
Donut Hole ExpensesIn 2018, you pay 35% of the cost of your brand-name medications and 44% 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 $35 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 $5000 in 2018, 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.
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.
Common Questions about the Medicare Donut HoleHow do I know if I will reach the Medicare Donut Hole?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.
When does the Medicare Donut Hole End?The donut hole ends when you reach the catastrophic coverage limit for the year. In 2018, the donut hole will end when you reach $5000 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.
Do Medicare Advantage plans cover the Donut Hole?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.
How Can I Avoid the Donut Hole?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.
Exemptions from the Coverage GapSometimes 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.