Understanding the Medicare Donut Hole

Medicare Part D prescription drug plans and some Medicare Advantage plans have what is known as a “donut hole” or “coverage gap,” which is a temporary limit on how much a Prescription Drug Plan will pay for prescription drug costs.

The Medicare donut hole is going away, however. Starting in 2020, Part D beneficiaries will pay 25 percent of the cost of brand name and generic drugs during the coverage gap until reaching catastrophic coverage spending limit.

Are you looking to enroll in a Medicare Part D prescription drug plan?

You can compare Part D plans available where you live and enroll in a Medicare prescription drug plan online in as little as 10 minutes when you visit MyRxPlans.com.1

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Medicare Part D donut hole

Neither Medicare Part A or Medicare Part B provide prescription drug coverage. Medicare beneficiaries who want coverage for prescription drugs have the option to enroll in a standalone Medicare Part D plan or a Medicare Advantage plan that includes prescription drug coverage.

Medicare Part D plans are sold by private insurance companies and can help cover the costs of some prescription drugs.

There are four main coverage phases associated with Part D plans:

  1. Deductible phase
  2. Initial coverage phase
  3. Donut hole
  4. Catastrophic coverage phase

Note: People who get Extra Help (a program that helps certain people with limited incomes pay for some of their Part D out-of-pocket costs) will not enter the Medicare donut hole.

Deductible phase

Most Medicare Part D plans have an annual deductible you must meet before Medicare begins paying its share for covered drugs.

Specific deductible amounts can vary widely from plan to plan. If your Part D plan does not have a deductible, you do not have to pay out-of-pocket costs to reach the initial coverage phase (below).

Initial coverage phase

Once you’ve met your Part D deductible, you enter the initial coverage phase. During the initial coverage phase, you pay a coinsurance or copayment for covered drugs, and Medicare pays the rest.

Donut hole phase

Typically, once you and your Part D plan have spent more than $3,820 (in 2019) in a single year on prescription drugs, you’ll enter the donut hole.2

Once you enter the donut hole in 2019, you are responsible for paying a larger portion of your drug costs (no more than 25 percent of the plan’s cost for covered brand-name prescription drugs and 37 percent of the plan's cost for generic drugs) until you reach $5,100.

Donut hole phase in 2019 and 2020

As noted above, the Medicare donut hole is shrinking in 2019, thanks to the Bipartisan Budget Act of 2018.

Some of the costs beneficiaries are responsible for during the donut hole phase are lower in 2019 than they were in 2018. 

As noted above, 2020 marks a shift for Part D beneficiaries. In 2020 and beyond, Part D beneficiaries will pay 25 percent of the cost of brand name and generic drugs during the coverage gap until reaching catastrophic coverage spending limit.

Catastrophic coverage phase

Once you’ve paid $5,100 on prescription drugs, you enter the catastrophic coverage phase.

When you enter catastrophic coverage, you only pay a small coinsurance or copayment for covered prescription drugs for the remainder of the year.

Not everyone will enter all four of these phases. In fact, depending on how many prescription drugs you buy and how much each drug costs, it is possible to never even leave the deductible phase.

Pharmacist smiles and speaks with her patient as she fills his prescription

Getting out of the coverage gap

The following out-of-pocket costs contribute to the overall costs that can get you out of the donut hole phase and into the catastrophic coverage phase:

  • Your yearly Part D deductible
  • Drug costs paid by you and your plan during the initial coverage phase
  • Copayments and coinsurance spent by you while in the donut hole

Some drug companies that make brand-name prescription drugs sign agreements with Medicare to participate in the Medicare Coverage Gap Discount Program.

Companies that participate in this program must offer discounts on covered brand-name drugs to individuals who have entered the donut hole.

The entire price (including the discount the drug company pays) will count toward getting you out of the donut hole and into catastrophic coverage.

For generic drugs, only the amount you pay will count toward getting you out of the coverage gap.

Costs that do not count towards getting out of the donut hole include:

  • Your Part D premium
  • Prescription drug costs that aren’t covered by your Part D plan
  • Certain fees that your pharmacy may charge (such as a dispensing fee)

Medicare Advantage prescription drug plans can help you save money on prescriptions

Most Medicare beneficiaries have the option to enroll in Medicare Advantage (Medicare Part C), which is an alternative to Original Medicare (Medicare Part A and Part B) that is sold by private insurers.

Unlike Original Medicare (which does not include coverage for prescription drugs), many Medicare Advantage plans cover prescription drugs. Some plans may offer additional benefits not covered by Medicare, such as dental, vision and hearing coverage.

A Medicare Advantage plan with prescription drug coverage can help you save money on your covered drugs, which can help lessen the impact of the Part D donut hole.

To find Medicare Advantage plans in your area or to learn more about Medicare Advantage Prescription Drug Plans, call today to speak with a licensed insurance agent.

 

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