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Understanding the Medicare Part D Donut Hole

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Medicare Part D Donut Hole

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.

What Does Medicare Part D Cover?

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 2019 is $415).
  • Phase 2 – Initial Coverage Phase: Cost sharing begins.
    • You pay 25% of the cost of drugs until you meet the coverage limit ($3,820 in 2019).
    • (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 2019, the TrOOP is $5,100).
    • Brand Name Drugs
      • You pay 25% of the cost of brand name drugs.
      • (Drug manufacturers & Part D pay 75% of the cost of brand name drugs.)
    • Generic Drugs
      • You pay 37% of the cost of generic drugs.
      • (Drug manufacturers & Part D pay 63% 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:

 

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 ($3,820 in 2019).

It is important to understand that the coverage limit ($3,820) 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.  Recipients only have to pay a portion of the retail price though copays or coinsurance in the Initial Coverage Phase. The Initial Coverage Phase is 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. This 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. For more information, read our article Avoid the Donut Hole with These 5 Tips: How to Save Money on Prescriptions.

Sign Up for Medicare Part D Online

If you are interested in or currently have a Part D plan, you can:

  • Join a Medicare Part D plan for coverage on prescription drugs
  • Switch from one Part D Plan to another Part D plan

We have a free, online tool that can help you find, compare, and choose Part D plans. To use this tool, enter your zip code, your local pharmacy, and the medications you are taking. It will automatically generate a list of the best plans for you. You can find this tool by visiting this link. 

If you need additional help, you can check out our how-to guide on how to find the right Part D plan for you. It will walk you through the step-by-step instructions on how to use the tool, and help get you to the plan that you need.

Compare Your Medicare Supplement Rates Immediately!

2 Replies to “Understanding the Medicare Part D Donut Hole”

  1. 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.

    1. 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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