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Medicare Donut Hole – Understanding Medicare Coverage Gaps

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; however Medicare was ahead of their goal a year and was actually able to close the gap for the 2019 calendar year.
 
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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 limit 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 lengthen 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 limit. 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 and can use supplemental policies to cover prescription drug costs. 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; however they were a year ahead of their goal and was able to close the gap by 2019.

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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. Thus, you will 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 maximum out-of-pocket expenses for Medicare’s catastrophic insurance to take effect. However, this will only be in effect until the next calendar year comes around, and then you will 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 paying the maximum of $5,100 for drugs covered under the Medicare Part D plan, you will only have to pay a 5 percent 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 can pay either the coinsurance payment or the copay depending on which is largest.

How do I avoid the donut hole all together?

There is a program called Extra Help that keeps people from falling into the donut hole. In 2019, your income has to be below $18,210 for an individual or $24,690 for a married couple to qualify. In addition, your total resources from bank accounts, stocks and bonds can’t exceed $9,060 per individual or $14,340 per married couple. 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 costs. Medicare will 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 is 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 obtaining 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 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 are 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.

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Manage 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. 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 is covered under your plan.
Track all expenses and review your Medicare statements for accuracy. Appeal anything that is denied to make sure you are getting your full value. Seek out additional assistance programs from pharmaceutical companies and state programs that can also help offset the cost of drugs while in the donut hole. Once you are in the donut hole, maximize expenses rapidly if you know that you will have to cover far more expensive pharmaceuticals before the end of the year. This will get you to the catastrophic insurance level, where your costs will drop once again, after you are no longer in the donut hole.