If you’re on Medicare, or starting your Medicare enrollment, you’ve probably heard about the “donut hole.” The donut hole is a coverage gap that many Medicare Drug Plans have that puts a temporary limit on what a drug plan will cover for the drugs you rely on. Honestly, it is unlikely that you will enter this gap, since it begins after you and your current drug plan have spent a specific amount for your covered drugs. Only about 12% of Medicare enrollees enter the donut hole each year. Although a large percentage of people ever reach the donut hole, it is still important to understand how you may get there, as well as how it will change what you will pay for your prescription medications, especially if you take more expensive brand-name medications.
In 2021, once the spending limit hits $4,130 for your covered drugs, you’ll be in the donut hole or coverage gap. This is an increase from the spending limit of $4,020 in 2020. The spending limit is not just the money you as the enrollees spends on the prescription drugs, it also includes what your Part D insurance carrier spends as well. Premiums, however, are not included in this total. If you are receiving extra help in paying for your Part D costs, you won’t have to worry about entering this coverage gap.
The Part D Coverage Gap is definitely not somewhere you want to be, so it is important to understand what stages come before the donut hole, as well as what Part D spending contributes toward reaching the coverage gap.
Medicare Part D Stages of Coverage
If your new to Medicare Part D and are unfamiliar with the Medicare Prescription Drug Plan coverage levels, it is important to know that there are four coverage levels you can fall into based on your drug spending throughout the year. The donut hole is the third of four payments stages in the prescription drug coverage for Medicare Part D. The four payment stages are:
- Deductible Stage: You may pay 100% of your prescription drugs costs until your annual deduction is made. This can vary with each plan, and the amount you pay for each drug is impacted based on the tier level of the medication. The maximum Part D deductible in 2021 is $445, which is an increase from the maximum of $435 in 2020. Once you meet your yearly drug deductible, you enter the initial coverage stage.
- Initial Coverage Stage: With initial coverage, you’ll pay a copayment or a form of coinsurance for each of your medications. The amount of your copay/coinsurance is dependent on the prescription drug plan’s formulary and medication tiers. If your plan and you spend a certain combined specific amount, $4,130 in 2021, you’ll reach this limit and enter the donut hole.
- Coverage Gap or Donut Hole Stage: In 2020, the donut hole has officially been closed. If you do go over your initial coverage limit, you’ll still enter this phase, but you’ll pay no more than 25% of the cost of your prescription drugs that are covered by your plan. This means that if the total drug cost between you and your insurance company exceeds $4,130 in 2021, you will now have to pay up to 25% coinsurance on your generic and brand name medications. While in the Donut Hole, Medicare starts tracking the Total True Out-of-Pocket (TrOOP). The TrOOP includes your deductible, copays/coinsurance, and the drug manufactures 70% cost. Once your True Out-of-Pocket reaches $6,550 in 2021, you will enter Catastrophic Coverage.
- Catastrophic Coverage Stage: By spending more than $6,550 in 2021, an increase from the 2020 amount of $6,350, you’ll enter the catastrophic coverage stage. For the remaining part of this year, you’ll pay a small amount for each drug covered on your plan. Only about 4% of people will make it to the catastrophic coverage stage each year.
In previous years, Phase 3 or the Donut Hole saw higher costs on prescription drug costs. Limits on what your plan may have spent weren’t nearly as strict. Considering the gap is officially seen as “closed,” you’ll still pay for your medications but only at 25% of the cost while you’re within this payment stage.
What Does This Coverage Gap Closure Mean to You?
Simply put, it means you’ll pay no more than 25% of the costs of your covered medications. If you receive any other prescription drug coverage, this may offset that cost. This 25% cost will apply to any covered and even brand-name prescription drugs that you get from any of your Medicare Drug Plans that are participating at retail and mail-order pharmacy. Remember that once you hit the $6,550 payment mark for your covered prescription costs in 2021, you’ll pay a low copayment for the rest of the year.
Breakdown of Costs in the Donut Hole-
- Medicare will pay 75% of the cost of your generic drugs while you’re in the coverage gap.
- You’ll pay the additional 25% of the cost—only the amount you pay counts toward you getting out of the coverage gap into catastrophic coverage.
- Out of the total drug cost, the manufacturer will pay 70%, so you get a discounted price. Your plan will pay 5%, with you paying the remaining 25% for the drug’s final cost.
- Even though your plan pays 75% of the dispensing fee, you’ll pay the remaining 25%.
- You will get a credit for 95% of the cost (manufacturer 70% + your 25%) toward your TrOOP, helping you get out of the donut hole into catastrophic coverage.
Neither your Part D monthly premium, what your drug plan pays on the drug cost, or the dispensing fee are counted toward any of your out-of-pocket spending.
Generic drug breakdown cost while in the donut hole/ coverage gap:
Items that will count toward reaching your coverage gap:
- Yearly deductible, copayments, and coinsurance.
- Discounts you get on any brand-name drugs while in the coverage gap.
- Everything you pay while in the coverage gap.
Items that won’t be counted towards reaching your coverage gap:
- Drug plan premium.
- A dispensing fee of the pharmacy.
- What you pay for any drugs that aren’t covered.
While the “donut hole” is officially closed, there are some things to consider as there are costs that you will have to cover. If you do have questions regarding this, be sure to check your Explanation of Benefits or EOB to see what discounts apply and what drugs are covered under your plan.
How to Change Medicare a Drug Plan
If you are currently on original Medicare and have a Medicare drug plan – You can change your drug plan at the end of each year during AEP. Changes must be made between October 15th and December 7th. Any change will go into effect January 1st. The process is the same for changing Medicare Advantage plans.