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Understanding the Medicare Donut Hole


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What is the Medicare donut hole?

Perhaps you have enrolled in a Medicare Prescription Drug Plan under Medicare Part D. You may be wondering about the Medicare Part D benefit stages, especially the coverage gap, also known as the Medicare “donut hole.”

The Medicare Part D donut hole is a stage in Part D prescription drug coverage that may temporarily limit what the Medicare Prescription Drug Plan will cover. During this stage of coverage, you may start paying more for covered prescription drugs than what you paid earlier in the year.

The dollar amount when you enter the donut hole stage may change each year. Changes in the dollar threshold for the Medicare donut hole, as well as the cost-sharing amount you pay during this coverage stage, result from the Affordable Care Act (ACA). The ACA aims to eliminate the Medicare donut hole in the year 2020.

Does the Medicare donut hole affect everyone with Medicare prescription drug coverage?

No. Not everyone will enter the Medicare donut hole stage. The Part D donut hole begins after you and your Medicare Prescription Drug Plan have spent a certain amount for covered prescription drugs during the calendar year. If your prescription drug costs during the year are less than the pre-defined amount, you won’t enter the Medicare donut hole stage. Your Part D expenses might not reach this limit in situations such as the following:

  • If you don’t take many prescription drugs, or those you take are lower-cost generic medications
  • If you have other prescription drug coverage from an employer or union that pays a portion of your prescription drug costs
  • If you have a Medicare Prescription Drug Plan that provides coverage for the Medicare donut hole stage.

If you receive Extra Help paying Part D costs, you won’t enter the Medicare Part D donut hole.

How does the Medicare donut hole work?

If your total prescription drug costs (what your plan has paid, plus your deductible, and the copayments and coinsurance you pay) are more than the limit that launches the coverage gap during the current calendar year, you may be in the Medicare Part D donut hole.

While in the Medicare donut hole, you typically pay a percentage of the cost of your prescription drugs. In 2019, you’ll pay (at most) 25% of your plan’s cost for every brand-name drug and 37% for every generic drug. You continue to get your prescription drugs from the retail and mail-order pharmacies in your plan’s network.

What costs count toward the Medicare donut hole?

You only enter the Medicare donut hole if you and your plan spend a certain combined amount of money within a calendar year. In 2019, this amount is $3,820. Here’s what counts toward the Medicare donut hole:

  • Plan deductible
  • Coinsurance/copayments for your medications
  • Any discount you get on brand-name drugs. For example, if your plan gives you a manufacturer’s discount of $30 for a medication, that $30 counts toward the Medicare Part D donut hole.

This may not be a complete list.

Here’s what doesn’t count toward the Medicare donut hole:

  • Your costs for any prescription drugs you buy that your plan doesn’t cover
  • Your monthly Medicare Prescription Drug Plan premium
  • Pharmacy dispensing fees

This may not be a complete list.

How do you get out of the Medicare donut hole?

After you’ve spent a certain amount of money while you’re in the Medicare donut hole, you reach a limit where you leave the coverage gap and enter a phase called catastrophic coverage.

In 2019, if this spending reaches $5100, that’s when you move into the “catastrophic” stage of Part D coverage. At this stage, your plan pays most of your prescription drug costs for the rest of the calendar year. You pay a small copayment or coinsurance for the cost of covered medications.

Medicare donut hole: an example

Nicole has a Medicare Part D Prescription Drug Plan, and takes costly prescription drugs to treat her medical conditions. This table helps illustrate the Medicare donut hole. Please note that the dollar amounts spent on prescription drugs are only for the purpose of this example involving the fictitious “Nicole.”

Event Cost description Dollar amount in 2019
Nicole pays her plan deductible. Then she pays copayments or coinsurance for her medications. Nicole’s spending on copayments and coinsurance, plus the plan’s costs, for Nicole’s medications, within one year $3,820
Nicole enters “donut hole.”
Nicole continues buying her medications. She pays 25% of her plan’s cost for her brand-name drug each month. Brand-name prescription drugs each month Plan’s cost: $300

Nicole’s cost: $75 (25% of the $300 cost of this drug)

Nicole continues buying her medications. She pays 37% of her plan’s cost for her generic drugs each month. Generic prescription drugs each month Plan’s cost: $195

Nicole’s cost: $72.15  (37% of the total costs of these drugs)

Nicole’s total medication expenses every month $147.15
Nicole’s spending after 9 months of being in the coverage gap (in the same year) $1,324.35
Nicole enters catastrophic coverage phase. Amount spent to reach coverage gap – $3,820

Amount spent during coverage gap – $1,324.35

$3,820 + $1,324.35= $5,144.35

($5100 in 2019 triggers the end of the coverage gap and the beginning of the catastrophic phase.)

From now until the end of the year, Nicole will only pay a small coinsurance/copayment for each medication.

 

Your Medicare Part D Prescription Drug Plan will continue to send you statements listing your prescription drug expenses (explanation of benefits). This statement explains how much you and the plan have paid for covered prescriptions, and which benefit stage you’re in.

Do you have questions about your Medicare Part D coverage or how to manage prescription drug costs if you enter the donut hole stage of coverage? Feel free to contact us to speak with an eHealth licensed insurance agent. We’re here to help. To compare plans, use the Browse Plans button on this page.

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