What is the Medicare Donut Hole?
The Donut Hole
Most Medicare Prescription Drug Plans have a coverage gap (also called the donut hole”). This means there’s a temporary limit on what the drug plan will cover for drugs. Not everyone will enter the coverage gap. The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs. In 2016, once you and your plan have spent $3,310 on covered rugs, you’re in the coverage gap. This amount may change each year. Also, people with Medicare who get Extra Help paying Part D costs won’t enter the coverage gap. In practice, this means that after an individual and their drug plan have spent a certain amount of money for covered drugs, the enrollee must pay all subsequent drug costs at retail rate out-of-pocket up to a yearly limit. A person’s yearly deductible, coinsurance/copayments, and what a person pays while in the coverage gap all count toward this out-of-pocket yearly limit. The limit doesn’t include premiums paid monthly or what a person pays for drugs that aren’t covered by the drug plan.
How costly can the coverage gap be?
This means that while enrollees are in the donut hole, the coverage gap can amount to thousands of dollars. In other words, while in the donut hole enrollees must pay 100% of the retail cost of their drugs until they have spent a set amount. Some prescription drug plans offer minimal coverage on things like generic drugs while enrollees are in the donut hole, though these types of plans will usually charge a higher monthly premium. Once an enrollee reaches the total out-of-pocket limit during the coverage gap, they are bumped into “catastrophic coverage.” Catastrophic coverage guarantees that once an enrollee has spent up to his or her plan’s out-of-pocket limit for covered prescriptions the person will only pay a nominal coinsurance fee or copayment for their drugs for the rest of the year. In 2016, Medicare will pay 42% of the price for generic drugs during the coverage gap. You’ll pay the remaining 58% of the price. What you pay for generic drugs during the coverage gap will decrease each year until it reached 25% in 2020. The coverage for generic drugs works differently from the discount for brand-name drugs. For generic drugs, only the amount you pay will count toward getting you out of the coverage gap.