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 copayments for their drugs to paying 100% of the cost.
How the Donut Hole Works in 2011
This is the standard Part D drug prescription plan for 2011 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, you pay a copayment or coinsurance, and your Part D drug plan pays its share for each covered drug until your combined amount (including your deductible) reaches $2840.
- Once you and your Part D drug plan have spent $2,840 for covered drugs, you will be in the donut hole. Previously, you had to pay the full cost of your prescription drugs while in the donut hole. However, in 2011, you get a 50% discount on covered brand-name prescription medications. The donut hole continues until your total out-of-pocket cost reaches $4,550. This annual out-of-pocket spending amount includes your yearly deductible, copayment, and coinsurance 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 then be responsible for a small copayment. 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.
Health Reform and Medicare Part D
The Affordable Care Act signed into law on March 23, 2010 makes several changes to Medicare Part D to reduce your out-of-pocket costs when you reach the donut hole, including:
- In 2010, if you had expenses in the coverage gap, you should have received a $250 rebate from Medicare.
- Beginning in 2011, if you reach the donut hole, you will be given a 50% discount on the total cost of brand name drugs while in the gap.
- Medicare will phase in additional discounts on the cost of both brand name and generic drugs.
By 2020, these changes will effectively close the coverage gap and rather than paying 100% of the costs, your responsibility will be 25% of the costs.
Donut Hole Examples
Charley Smith takes three medications to treat his high blood pressure and high cholesterol. These medications will cost him about $1,200 in 2011. 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% (coinsurance) of the remaining $890 cost of his medications ($1200 - $310 = $890). His additional out-of-pocket cost during this initial coverage period will be $223 ($890 X 25% = $223)
- Since Charley did not reach the $2840 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).
Mary Jones takes three medications to treat her type 2 diabetes, high blood pressure, and high cholesterol – all of them brand name drugs. These medications will cost her about $3,800 in 2010. Mary is planning to join a Medicare prescription drug plan that offers the standard Medicare drug benefit, including a deductible and no coverage for generic medications in the donut hole.
This is what her prescription medications will cost in the plan she has selected:
- Mary will pay a deductible of $310
- She will then pay 25% of the cost of her medications for the next $2530, until she reaches the coverage gap. Her additional out-of-pocket cost during this initial coverage period will be $633 ($2530 X 25% = $633)
- Since Mary did reach $2840 in drug spending ($310 + $2530 = $2840), she will enter the donut hole. Prior to 2011, Mary would have been responsible for 100% of the remaining cost of $970. However, since all of Mary’s medications are brand names, she will only have to pay about 50% of the drug costs while in the donut hole.
Mary’s total estimated annual out-of-pocket prescription drug cost with her Medicare Part D plan will be $310 + $633 + $485 = $1428 (plus her monthly premiums for the Medicare Part D plan).