The Medicare “donut hole” is not so sweet
When you hear the term “donut hole” you might think powdered or glazed, chocolate or cinnamon. But when it comes to Medicare, it’s not much of a treat.
The phrase “donut hole” is commonly used to describe the coverage gap found in most Medicare Part D prescription drug plans (PDP). The coverage gap opens after initial plan coverage limits have been reached and before catastrophic coverage kicks in.
While in the gap, PDP members with high prescription drug costs may have to pay a larger share of the cost for their medicine.
The good news? The Affordable Care Act (ACA) has been shrinking the donut hole bit by bit each year since 2011, so:
- In 2019, you’ll pay 25% of the cost for brand-name drugs and 37% of the cost for generic drugs while in the coverage gap.
- In 2020, the 37% copay for generic drugs in the coverage gap will be reduced to 25%, as well, effectively closing the “donut hole.”
If your Medicare plan has a deductible, you might have to spend some money out-of-pocket before you take your first bite out of the Part D “donut.” That's because some plans require you to pay a deductible, or 100% of the cost of prescription drugs, up to a certain limit.
When you reach the deductible, you can begin nibbling away at the Part D donut, at which point your drug plan begins paying most of the cost of prescriptions. For example, if your plan requires a 25% copayment for a $200 prescription, your plan would cover $150 and you would pay $50.
If the combined amount you and your drug plan pay for prescription drugs reaches a certain level during the year—that limit is $3820 in 2019—you enter the Part D donut hole, the space in which you must pay a greater share of the cost.
In 2020, when the donut coverage gap closes, the most you’ll have to pay for both covered brand name and generic drugs is 25%.
So how do you get out of the hole and into the remaining part of the donut, which is known as “catastrophic coverage?”
You become eligible for Part D catastrophic coverage once the amount you pay out-of-pocket for the year reaches a certain limit. In 2019, that limit is $5,100.
Your yearly deductible, coinsurance and copayments, the discount you get on brand name drugs (Medicare negotiates these with drug makers for beneficiaries in the donut hole), and what you pay for prescriptions while in the donut hole, all count toward the amount you need to spend to get Part D catastrophic coverage.
However, the premiums you pay for your drug plan, and what you pay for drugs that Medicare doesn't cover, don’t count toward what you have to spend to exit the donut hole.