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Medicare Donut Hole – Understanding Medicare Coverage Gaps

Until 2019, people with prescription drug coverage under Medicare Part D may have had to deal with a coverage gap in what their plan paid for prescription drugs once they hit a certain dollar amount. This was known as the Part D “donut hole,” because you hit it at a certain point and got out of it once spending hit another point (with a gap, or hole, in the middle).

The Affordable Care Act effectively closed this hole. Before the ACA, people in the donut hole may have had to pay full price for the cost of their prescriptions. This could be especially tough for people with pricey brand name drugs or several generics with a high price tag.

The ACA allowed people in the coverage gap to get a discount on their medications while they were stuck in the gap. Each year, that discount grew, so that by 2020, the idea was that anyone stuck in the Part D donut hole would pay just 25% of the cost of their medication until they reached the other side of the donut.

Fortunately, that method paid off. If you hit the initial coverage limit of your Part D plan these days, you’ll now pay 25% of the cost of both brand name and generics until your spending reaches the out-of-pocket threshold.

The initial coverage limit and out-of-pocket threshold change each year. In 2024, the initial coverage limit for Part D will be $5,030 while the out-of-pocket threshold will be $8,000. The interim in that spending is where the donut hole percentage comes into play.

Because this gap is now “closed,” the Medicare Part D donut hole is a thing of the past. But 25% of the cost of medication can still be pricey, so it’s worth checking to see how your Part D plan handles drug costs once you reach the initial coverage limit. Not many people actually hit this limit in spending, but for those who do, it can still be tough to cover the cost.

Below, we’ve kept some information available on the donut hole and how it impacted people before 2019. Just note that everything below this opening paragraph is old information, kept here for reference only.

Need more information on Medicare Part D? Just check out our other articles or call us at 1-800-485-6202 to talk to a licensed agent, who can help you find the right Medicare coverage for your needs.

The Donut Hole in 2019

Some Medicare Part D plans have a coverage gap that happens after a set amount of drug costs have been paid out under the plan. The coverage gap is also called the “donut hole.” In 2019, beneficiaries reach the donut hole once they and their plan have spent $3,820 in drug costs.

After you and your Part D plan have spent $3,820 on your drug costs, you’ll be in the donut hole and will assume most of the costs, and you won’t get out of the coverage gap until you’ve reached the out-of-pocket spending limit for the year. In 2019, that’s $5,100. The donut hole limits get revised each calendar year.

While in the donut hole, you do have a variety of ways to offset the cost of your medications. These include health reform initiatives that offer discounts and subsidies as well as drug assistance programs covered by the state, local non-profits and pharmaceutical companies.

The donut hole is set to close over time as government subsidies and drug discounts help to gradually remove the burden of paying for drugs during the gap. It’s estimated that the donut hole was supposed to disappear by 2020. But Medicare was ahead of their goal a year and was actually able to close the gap for the 2019 calendar year.

What can I expect to pay for prescription drugs while in the donut hole?

You won’t have to pay the full costs of your covered drugs even if you reach the donut hole. There are a variety of assistance programs that can take the sting out of paying for needed drugs during this time. Subsidies and assistance program payouts can also vary depending on whether you are paying for generic or brand name drugs. Each plan may have different covered drugs on its list, so this will also impact what is eligible for a discount, whether you’re in the donut hole or not.

  • Generic drugs In 2019, the discount for generic drugs is 63 percent. You’re responsible for the remaining 37 percent of the cost of generic drugs while in the gap. If you decide to get a generic drug, you won’t be able to count the total cost of the drug towards your out-of-pocket threshold of $5,100 for the year. Instead, you can only count what you personally pay for it. The big difference between using generic drugs and prescription brand name drugs is that it can affect your total cost, thereby lengthening the time you spend in the donut hole.
  • Prescription brand name drugs In 2019, you’re only responsible for 25 percent of the cost of covered brand name drugs while you’re in the donut hole, which means that your plan will pay for the remaining 75 percent. While you’re in the coverage gap, 95 percent of the cost of brand-name drugs (including what you pay and the discount) counts toward meeting the out-of-pocket spending threshold. Again, you’re not out of the donut hole until you reach $5,100 in out-of-pocket spending in 2019. Once you hit that limit, you’ll reach catastrophic coverage levels, which is a low set dollar amount or percentage depending on the plan. In addition, there are manufacturer discounts associated with Medicare Plan D along with subsidies. The Affordable Care Act required the Medicare program to decrease the Medicare beneficiary’s payment responsibility for brand name drugs to 25% by 2020. But they were a year ahead of their goal and were able to close the gap by 2019.

The Medicare Part D Cycle

Medicare Part D is designed to cover specific drugs that vary among insurance plans. Make sure your plan covers the drugs, both generic and brand name, that you will be using the most. If a drug is not covered under your plan, you won’t get the subsidies and the manufacturer discounts that come with Medicare Part D. They also may not count towards your total out-of-pocket expenses. You will also need to continue to pay your premiums during the donut hole period, even if your drugs are not covered.

Medicare Part D coverage starts on January 1st of each calendar year. Anything you paid out of pocket gets wiped out and the balance restarts every year. As a result, you’ll use your plan’s standard deductible and co-payments at the start of the year until you reach the donut hole. After you’ve dropped into the donut hole, you have to reach the out-of-pocket threshold for Medicare’s catastrophic Part D coverage to take effect. However, this will only be in effect until the next calendar year comes around, and then you’ll start once again with the original plan’s co-payments and deductibles.

What happens if you do happen to reach the catastrophic insurance level in a calendar year? After hitting the threshold of $5,100 for drugs covered under the Medicare Part D plan, you will only have to pay a 5% coinsurance payment or the copay associated with your drug. In 2019, these costs will be $2.95 for generic drugs and $7.40 for brand name drugs. You’ll pay the higher of these amounts.

How do I avoid the donut hole altogether?

There is a program called Extra Help that keeps people from falling into the donut hole. Certain income and asset limits apply, and these change each year. You also have to live within the United States (any of the 50 states or the District of Columbia) to qualify. Extra Help allows low-income households to avoid the donut hole altogether. Residents of Alaska and Hawaii may qualify for cost assistance even if they earn above the threshold amounts since cost of living is higher in these states.

Keeping Track of Prescription Drug Costs

Since Medicare Part D and the donut hole work on a calendar year cycle, you will need to keep track of your costs. Medicare will also automatically do this and will mail you a statement that you can review to compare against your own records. To verify that you’re getting all of your out-of-pocket expenses tabulated, and that they’re being tracked correctly while you’re in the donut hole, you will need to collect the following information:

  • Drug receipts. When you pay for drugs out of pocket, keep the receipt in case you need to plead your case. It will verify how much you spent, but it can also include items that aren’t going to count towards your final total, like pharmacy dispensing fees. Receipts will also prove the type of drug you received, in case there’s a question as to whether it was covered or not under your plan in the first place.
  • Out-of-pocket expenses. This will include the cost of getting your covered drug as well as other expenses. Keep track of the deductible, co-payments and if you had to pay a coinsurance amount. As long as the drugs are covered under your plan, you can tally these additional expenses into the amount you must reach in order to hit catastrophic insurance levels.
  • Discounts and subsidies. You might reach the donut hole and fail to receive the manufacturer’s discount or the government subsidy for your covered brand name drugs for some reason. You will need to review the “Explanation of Benefits” for your particular plan to make sure the drug is a covered drug. If it is covered, and you still haven’t received your discount or subsidy, and you believe you’re in the donut hole, make sure that all your out-of-pocket expenses are correct. Then, file an appeal to make sure you get the discounts and subsidies you should be getting under the donut hole.

Managing Your Drug Costs More Effectively

If you know your expenses will be high each year, you can use the information to sign up for plans that cover more expensive medication. Low-income enrollees can sign up for Extra Help to avoid the donut hole before it becomes a problem as well. And you can also check with your doctor before being prescribed a new medicine to make sure that you’re getting the best drug for the cost and that it’s covered under your plan.

Track all expenses and review your Medicare statements for accuracy. Appeal anything that’s denied to make sure you’re getting your full value. And if you need more help, seek out additional assistance programs from pharmaceutical companies and state programs that can also help offset the cost of drugs while you’re in the donut hole.