Part D

Medicare ‘Donut Hole’: How It Works and How Beneficiaries Can Save Money on Medicare Drug Costs

The Medicare donut hole is a gap in coverage that some Medicare beneficiaries may experience at some point during their plan year. The good news? You can save money by knowing how to avoid it and what do to once you’re in it.

It may seem strange to draw a parallel between Medicare and donuts. However, it’s all about having a visual image to understand how Medicare Part D coverage works – specifically the idea that you may encounter a gap in coverage (i.e., the Medicare donut hole) at some point during your plan year.

Medicare Part D is optional prescription drug coverage for Medicare beneficiaries. To get Medicare prescription drug coverage, you can add Part D to your Original Medicare coverage (Medicare Part A and Part B), you can enroll in a Medicare Advantage plan that includes Part D coverage (called a Medicare Advantage Prescription Drug plan, or MA-PD) or you can enroll in a standalone Part D plan if you have a Medicare Advantage plan that doesn’t already include drug coverage.

What is the Medicare donut hole?

Back to the visual donut image. Picture a donut with a hole in the middle. Maybe it’s an old fashioned style, chocolate glazed, vanilla frosted with sprinkles, apple cider or any other flavor of your choice. Now that we’ve got your attention, let’s continue.

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Basically, there are four Medicare Part D coverage stages you need to understand.

  • Your first Medicare Part D coverage phase can be represented by the left side of the donut ring. On this side of the donut, you pay the entire amount for your prescription drugs until you meet your deductible (assuming your plan has one, but not all Part D plans do). This first coverage phase is called the deductible period where you pay the full negotiated price for covered prescription drugs.

  • The good news is that once you meet your deductible (which can be no higher than $445 in 2021 though some plans may offer $0 deductibles) you move to your initial coverage period. If your plan features a $0 deductible, then your coverage starts in this phase. This is the phase when you start paying a copayment or coinsurance for covered drugs. The coinsurance amount varies depending on the drug’s cost and assigned tier level.

  • After you and your drug plan have combined to spend a set amount for the prescription drugs covered by your plan ($4,130 in 2021), you move into the center of the donut (i.e., the hole) which is your Medicare coverage gap.

    While you’re in the donut hole coverage gap, you’re responsible for 25% of your prescription drug costs for both brand name and generic drugs.

  • Once you and your plan have combined to spend a total of $6,550 on covered drugs in 2021, you move to the right side of the donut ring where your catastrophic coverage period kicks in, and you pay lower copays and coinsurance for your prescription drugs for the rest of the year.

Finally, your policy period ends on December 31, and your Medicare Part D plan resets on January 1. In other words, time for your next donut.

What is the Medicare donut hole for 2021?

The Medicare donut hole for 2021 starts once you hit $4,130 in out-of-pocket prescription drug costs, and it extends to $6,550. If your prescription drug spending reaches $6,550 in 2021, you’ll have catastrophic coverage for the rest of the year.

Did the Medicare donut hole go away in 2020?

No. The Medicare donut hole still exists. However, starting in 2020, instead of being responsible for 37% of the cost of generic prescription drugs and 25% of the cost of brand name prescription drugs while in the donut hole (as was the case in 2019), Medicare beneficiaries only pay 25% for both brand name and generic drugs.

Previously, when Medicare Part D was first rolled out in 2007 and prior to the Affordable Care Act, beneficiaries paid 100% of drug costs while in the donut hole.

Can I avoid the Medicare donut hole?

The only way to avoid the Medicare donut hole is to prevent your out-of-pocket expenses for prescription drugs from reaching $4,130 in 2021. Once you hit that amount, you enter the Medicare coverage gap.

With that said, there are several ways to manage out-of-pocket costs to try and avoid the coverage gap. One way is to switch from a brand name drug to a generic drug or from a brand name to a less expensive brand name drug, if possible. Ask your physician whether this is possible based on your specific medical condition and health history.

Another option is to use mail-order pharmacies or take advantage of Pharmaceutical Assistance Programs provided by your state or by the company that makes your drug.

One caveat is that people with specific income and resource limits may qualify for the Extra Help program, in which case they would not enter the donut hole.

How can I get out of the Medicare donut hole once I’m in it?

As the saying goes, the only way out sometimes is to go through. As your out-of-pocket spending adds up, you’ll eventually move out of the donut hole and into the catastrophic coverage phase.

However, it may make sense to switch to brand-name drugs while you’re in the Medicare donut hole. That’s because the manufacturer discount you receive for brand-name drugs counts toward your out-of-pocket spending. As always, be sure to speak with your doctor or pharmacist before making any decisions about switching drugs.

Do Medicare Advantage plans cover the Medicare donut hole?

Some Medicare Advantage plans may offer extended gap coverage for enrollees in the Medicare donut hole, though you should check with your specific plan for more details.

A licensed insurance agent can help you learn about Medicare Part D plans and Medicare Advantage plans with prescription drug coverage that may be available where you live.

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Lisa

About the author

Lisa Eramo is an independent health care writer whose work appears in the Journal of the American Health Information Management Association, Healthcare Financial Management Association, For The Record Magazine, Medical Economics, Medscape and more.

Lisa studied creative writing at Hamilton College and obtained a master’s degree in journalism from Northeastern University. She is a member of the American Health Information Management Association, American Academy of Professional Coders, Society of Professional Journalists, Association of Health Care Journalists and the American Society of Journalists and Authors.

Lisa currently resides in Cranston, Rhode Island with her wife and two-year-old twin boys.

 

Website: LisaEramo.com

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