Medicare Part D Donut Hole – Medicare Coverage Gap

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You may not know that under Medicare Part D, you may have a prescription drug coverage gap, often referred to as the "donut hole," during which you'll have limited or no prescription drug coverage. Find out exactly what this coverage gap is, and learn how to bridge the prescription drug coverage gap.

What is the Medicare coverage gap, also known as the donut hole?

Most Medicare Part D Prescription Drug Plans have a coverage gap, sometimes called the Medicare "donut hole." This means that after you and your Medicare drug plan have spent a certain amount of money for covered prescription drugs, you then have to pay all costs out-of-pocket for the drugs, up to a certain out-of-pocket limit. The yearly deductible, coinsurance, or copayments, and what you pay while in the coverage gap, all count toward this out-of-pocket limit. The limit doesn't include the drug plan's premium.

There are Prescription Drug Plans that offer some coverage while you're in coverage the gap; some plans provide coverage for generic drugs, for example. However, plans with gap coverage may charge a higher monthly premium. Check with the Prescription Drug Plan first to see if your drugs would be covered during the coverage gap.

Once you reach the plan's out-of-pocket limit during the coverage gap, "catastrophic coverage" automatically kicks in. Catastrophic coverage means that when you've spent up to the plan's out-of-pocket limit for covered drugs, you will only pay a small coinsurance amount or a copayment for the rest of the year.

Costs in the coverage gap

The example below shows the costs for covered drugs for a Medicare Prescription Drug Plan and the coverage gap. Ms. Jones enrolls into the ABC Prescription Drug Plan. She uses her Medicare Prescription Drug Plan membership card when she buys prescriptions.

Monthly Premium - Ms. Jones pays a monthly premium throughout the year.
Source: "Costs in the coverage gap," The Official U.S. Government Site for Medicare, Medicare.gov, 2016.
1. Yearly Deductible 2. Copayment or Coinsurance 3. Coverage
Gap
4. Catastrophic Coverage
Ms. Jones pays for the full cost of her drugs until she reaches her plan’s deductible, which is $360 in 2016, before her plan starts to pay its share. Ms. Jones pays a copayment, and her plan pays its share for each covered drug until what they pay (plus the deductible) reaches $3,310 in 2016. Once Ms. Jones and her plan have spent $3,310 in 2016 for covered drugs, she is in the coverage gap. She pays 45% in 2016 of her plan's price for her covered brand name prescription drugs and 58% in 2016 of her plan's price for covered generic drugs. What she pays (and the discount paid by the drug company) counts as out of-pocket spending, and helps her get out of the coverage gap. After Ms. Jones' out-of-pocket cost totals $4,850 in 2016 for the year, her coverage gap ends. Now she only pays 5% of the cost, or $2.65 copay for generic (including brand drugs treated as generics) and a $6.60 copayment for all other drugs until the end of the year.

Extra Help with the coverage gap

People who get Medicare Extra Help to pay drug costs won't have a coverage gap and will pay a small or no copayment once they reach catastrophic coverage. Extra Help is a special part of Medicare prescription drug coverage that gives more assistance to people with limited incomes than the regular program does.

Qualifying for Extra Help can save a lot of money. If you qualify for "full" Extra Help, you receive coverage throughout the year (no coverage gap) and pay very little for your prescriptions. If you qualify for "partial" Extra Help, you receive coverage throughout the year and pay a reduced premium and deductible and up to 15% of the cost of your drugs.

Obamacare and the coverage gap

Federal health-care reform legislation -- the Affordable Care Act, also called Obamacare -- has addressed the problem by steadily reducing the prescription drug coverage gap over several years. By 2020, the prescription drug coverage gap will be closed completely, meaning that the donut hole will cease to exist, and you will only have to pay 25% of the cost of your prescription drugs until you reach your annual out-of-pocket limit.

This article is for general informational purposes, so when you consider enrolling in any specific plan, you should always check the plan benefits and details carefully to make sure you understand how that specific plan works.

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