Hitting the Donut Hole
The donut hole, or coverage gap, is one of the most controversial parts of the Medicare Part D prescription drug benefit and of concern to many people who have joined a Part D drug plan.
Although all prescription drug plans must explain the coverage gap in their literature and advertising, the donut hole comes as a shock to many enrollees when they go abruptly from making co-payments for their drugs to paying 100% of the cost.
In addition, you may be confused about the $2,830 limit for 2010 in your initial coverage period, thinking it is the only amount of money you would have to pay out-of-pocket. In fact, the amount includes the total cost of your drugs, meaning what you paid plus what the prescription drug plan paid.
How the Donut Hole Works in 2010
This is the standard Part D drug prescription plan for 2010 required by Medicare.
- If you join a Medicare prescription drug plan, you may have to pay up to the first $310 of your drug costs. This is known as the deductible.
- During the initial coverage phase, your drug plan pays 75% of the covered prescription drug costs after your deductible is met, and you pay 25% until the total drug costs (including your deductible) reach $2,830.
- Once you reach $2,830 in total drug costs, you will be in the donut hole and you must pay the full cost of prescription drugs until your total out-of-pocket cost reaches $4,550. This annual out-of-pocket spending amount includes your yearly deductible and copay amounts.
- When you spend more than $4,550 out-of-pocket, the coverage gap ends and your drug plan pays most of the costs of your covered drugs for the remainder of the year. You will be responsible for a copay of $2.40 for each generic drug and $6.00 for other drugs (or 5%, whichever is higher). This is known as catastrophic coverage.
The expenses outlined above only include the cost of prescription medications. It does not include the monthly premium that you pay to the prescription drug plan.
It is important to understand that your Part D prescription drug plan may differ from the standard Medicare plan only if the plan offers you a better benefit. For example, your plan can eliminate or lower the amount of the deductible. And, your plan can pay for generic or brand name medications in the coverage gap.
Donut Hole Examples
Charley Smith
Charley Smith takes three medications to treat his high blood pressure and high cholesterol. These medications will cost him about $1,200 in 2010. Charley is switching to a Medicare prescription drug plan that has a low premium and offers the standard Medicare drug benefit, including a deductible and no drug coverage in the donut hole.
This is what his prescription medications will cost in the plan he has selected:
- Charley will pay a deductible of $310
- He will then pay 25% of the remaining $890 cost of his medications ($1200 - $310 = $890). His out-of-pocket cost during this initial coverage period will be $223 ($890 X 25% = $223)
- Since Charley did not reach the $2830 initial coverage limit, he will not enter the donut hole.
Charley’s total estimated annual out-of-pocket prescription drug cost with his Medicare Part D plan will be $310 + $223 = $533 (plus his monthly premiums for the Medicare Part D plan).
Mike Jones
Mike Jones takes five medications to treat his type 2 diabetes, high blood pressure, and high cholesterol. These medications will cost him about $3,800 in 2010. Mike is planning to join a Medicare prescription drug plan that offers the standard Medicare drug benefit, including a deductible and no drug coverage in the donut hole.
This is what his prescription medications will cost in the plan he has selected:
- Mike will pay a deductible of $310
- He will then pay 25% of the cost of his medications for the next $2520, until he reaches the coverage gap. His out-of-pocket cost during this initial coverage period will be $630 ($2520 X 25% = $630)
- He will then enter the donut hole and be 100% responsible for the remaining cost of $970
Mike’s total estimated annual out-of-pocket prescription drug cost with his Medicare Part D plan will be $310 + $630 + $970 = $1,910 (plus his monthly premiums for the Medicare Part D plan).
Sarah Golden
Sarah takes two expensive brand name medications to treat her rheumatoid arthritis and asthma. These medications will cost her about $8400 in 2010. Sarah has selected a Medicare prescription drug plan that has no deductible and no drug coverage in the donut hole.
This is what her prescription medications will cost in the plan she selected:
- Since Sarah has no deductible, she will pay 25% of the cost of her medications during the initial coverage period of $2830. Her out-of-pocket cost will be $708 ($2830 X 25% = $708)
- She will then enter the donut hole and be responsible for 100% of the cost of her medication until she reaches an out-of-pocket limit of $4,550
- Since she has already spent $708 out-of-pocket, she will be responsible for an additional $3,842 while in the donut hole ($4,550 - $708 = 3,842)
- At this point, the total amount that Sarah and her health plan have paid for her drugs is $6,672 ($2,830 during the initial coverage period + 3,842 during the donut hole = $6,672)
- Since the total amount of her drug costs is $8400, there is still an additional $1,728 that needs to be paid ($8,400 - $6,672 = $1,728)
- Sarah will only have to pay about 5% of the remaining drug costs, or $86.40; her drug plan will pay the remaining amount ($1,728 X 5% = $86.40)
Sarah’s total estimated annual out-of-pocket prescription drug cost with her Medicare Part D plan will be $708 + $3,842 + $86.40 = $4,636.40 (plus her monthly premiums for the Medicare Part D plan).
