How to Avoid the Donut Hole (Medicare Part D Coverage Gap)

Medicare Part D’s Infamous Donut Hole

This is Part II of a two-part blog series on Medicare Part D. Read Part I on overcoming the pitfalls of Part D.

There are big changes to Medicare Part D’s “Donut Hole” on the horizon. The Donut Hole is the somewhat confusing and frustrating phase of Medicare Part D’s coverage. It is important to understand the history of Medicare Part D and its infamous donut hole (also known as the coverage gap) before going over the future of the donut hole.

The Beginning of Medicare Part D

The Medicare Part D program was rolled out on January 1, 2006, to help Medicare beneficiaries cover the cost of their medications.

There are four phases in Medicare Part D’s coverage.

  • Phase 1 – Deductible Phase:
    • You (the Medicare beneficiary) pay for the full cost of drugs until you reach the deductible (the maximum deductible in 2016 is $360).
  • Phase 2 – Initial Coverage Phase: Cost sharing begins.
    • You pay 25% of the cost of drugs until you meet the coverage limit ($3,310 in 2016).
    • (Part D pays the remaining 75% of the cost of drugs in Phase 2.)
  • Phase 3 – Donut Hole or Coverage Gap: You are in the “donut hole” until you meet the total true-out-of-pocket, also called TrOOP (for 2016, the TrOOP is $4,850).
    • Brand Name Drugs
      • You pay 45% of the cost of brand name drugs.
      • (Drug manufacturers & Part D pay 55% of the cost of brand name drugs.)
    • Generic Drugs
      • You pay 42% of the cost of generic drugs.
      • (Drug manufacturers & Part D pay 58% of the cost of generic drugs.)
  • Phase 4 – Catastrophic Coverage:
    • You pay a small amount of the cost, usually 5% of the cost of your drugs.

You get an idea of the complexity of Medicare Part D’s coverage in the graph below:

Part D Coverage Phases: Annual Deductible, Initial Coverage, Donut Hole, Catastrophic Coverage

What is the Donut Hole?

Since the beginning of Part D in 2006, there has always been a coverage gap. This gap or donut hole is triggered when the beneficiary’s medication purchases meet the initial coverage limit ($3,310 in 2016).

It is important to understand that the coverage limit ($3,310) is not the amount the Medicare recipient pays but the retail value of the medications. The Medicare recipient typically pays much less than the retail amount because he or she only has to pay a portion of the retail price though the copays or coinsurance in the Initial Coverage Phase (the period before entering the donut hole).

The catastrophic coverage phase of Part D only begins after the beneficiary has met the deductible, initial coverage limit, AND donut hole. The Part D policyholder must pay several thousand dollars out-of-pocket before catastrophic coverage, in which the he or she will only be responsible for about 5% of the retail cost of mediations.

You may be wondering why there is even a donut hole in the first place. It seems like it makes Part D benefits unnecessarily complex. Well, the donut hole is Medicare’s attempt at providing comprehensive coverage for the majority and catastrophic coverage for the minority WHILE staying within the projected budget. Needless to say, the first year of Medicare Part D cost substantially more than what was projected prior to its inception in 2006.

The Future of the Donut Hole

For many Medicare Part D beneficiaries, the donut hole is very financially challenging and demanding. It seems like the cost of drugs continue to rise while coverage of drugs become more and more limited.

Fortunately, Medicare recognizes that Part D poses a great financial burden on beneficiaries, and they want to change this. So, what’s the big change coming in the future?

In 2010, healthcare reform legislation (Affordable Care Act) addressed this issue by putting more of the financial responsibility on pharmaceutical companies (instead of senior beneficiaries) to pay for more of the costs in the donut hole. Since 2010, drug companies have been responsible for covering an ever-increasing percentage of the donut hole. The coverage gap will continue to decrease steadily until it is completely eliminated in 2020.

The financial burden on the Medicare recipient will gradually transfer over to the drug companies in the next few years, which should allow seniors to save more money over the years.

Ways Senior Citizens Can Save on Medications

Even though beneficiaries will pay less and less for their generic and brand name medications before the donut hole is fully eliminated 2020, it can still be very expensive for seniors to get the medications they need for their health.

Are there ways to reduce the costs of your prescription drugs? Yes, there are.

Here are some tips from our clients on what they do to save on medications. (Please note, we do not condone all of these practices and that you should discuss any changes in how your purchase, consume, and choose your medications with your physician.)

  • Ask for Generic Versions or Alternatives – Doctors will often prescribe the latest (and often expensive) name brand medication for various conditions when a generic version or alternative can be as effective and cost much less. Let your doctor know if you find the name brand medications to be too expensive and ask if he or she will recommend something more cost-effective.
  • Eliminate Unnecessary Drugs – You might be surprised to learn how often people are overprescribed medications. If you take more than a handful of medications daily, you may want to get a second opinion from another doctor on whether you need every medication.
  • Splitting Pills – An example of splitting pills: If you need to take 20mg of a particular medication each day, you can buy the 40mg version, which typically usually does not cost much more than the lower dosage. You can then split the 40mg and have twice as many 20mg doses for little to no extra money. This cost-saving technique is so popular there are actually pill-splitting devices sold at most pharmacies. Speak with your doctor about this option.
  • Shop Around – The retail cost of your medications can vary significantly by pharmacy. We’ve noticed that Wal-Mart and Sam’s Club pharmacies tend to have much better rates than many corner pharmacy stores. This can delay and possibly even prevent you from going into the donut hole.
  • Ask for Samples – If your doctor prescribes a name brand medication for an acute condition that only requires you take the medication for a short period of time your doctor might be willing and able to provide you with enough samples to get you through that short time.
  • Buy the Right Part D Plan – There are quite a few Part D options to choose from each year. Re-evaluate during the Annual Election Period between October 15 and December 7 for the next year. Even if your medications do not change, the plan you currently own could change in a number of ways and may not be the best coverage for you going in to the next year.
  • Buy From Canada – We don’t advise doing this, but many of our clients swear by it and have been very pleased with the cost and quality. Because these medications are not evaluated by the FDA, there is a concern that you might take fake medications or worse. Proceed at your own risk with this. Again, we advise against it.

So, as you can see, there is quite a bit you can do to attempt to reduce your likelihood of getting into the “donut hole” and for reducing the impact of the coverage gap should you find yourself in that situation.

Do you have other ways you reduce medication expenses? Let us know in the comments below.


*Please note GoMedigap does not and cannot sell Part D plans as it is a federal program. Part D can be purchased either by calling the plan, enrolling online, or calling 1-800-MEDICARE (1-800-633-4227).

Comments

  1. Sally says

    If you are taking only generic scripts and you are willing to do the Mail In route for a 90 day script…take a look at the Humana Walmart Plan. It runs for a single person $18.60 per month (223.00/yr), and I take 3 different scripts and an eye med. I pay nothing for the generic scripts and no out of pocket or deductible. It’s been quite cost effective thus far.

    • Richard Cantu says

      Sally,

      Thank you so much for the feedback. We have noticed the Humana plan can be a very good plan for many. We encourage you and others to always check with Medicare by calling 800-633-4227 or by visiting their website at http://www.medicare.gov to ensure the plan covers each person’s unique list of medications. There are dozens of plans available and, unfortunately, not one plan makes sense for everyone. We would also encourage you to check the available plans for 2017 this coming October as plans can change from year-to-year. The plan you use this year might not be best for you going into the new year.

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