Figuring out costs in Medicare has always been a little confusing, and the donut hole is definitely no exception. It doesn’t help that healthcare has become so politicized, with politicians slicing and dicing Medicare benefits. At the beginning of 2018, headlines throughout the industry proclaimed that the donut hole was ending in 2019 (some said 2020). According to Medicare, though, the donut hole is not going away. It is, however, becoming less expensive.
What Is the Donut Hole?
Most Medicare Part D plans have a coverage gap, commonly referred to as the donut hole. You enter the donut hole when you and your plan spend a certain amount on covered prescription drugs. That amount changes yearly. In 2018, you enter the coverage gap once you and your Part D plan spend a combined total of $3,750.
It’s important to note that you still have Part D coverage while in the donut hole. It isn’t that your plan no longer pays any of your prescription costs. Instead, your share of those costs goes up. The amount you pay depends on whether the prescription is a brand name drug or a generic one.
Under the Affordable Care Act, your costs in the donut hole shrink every year before stabilizing in 2020.
Barring further changes, your out-of-pocket costs for both brand name and generic prescriptions will remain at 25 percent beyond 2020. This percentage matches your out-of-pocket costs once you meet your plan’s deductible (if it has one). You pay this percentage until you reach your yearly out-of-pocket spending limit, which is $5,000 in 2018. When this happens, you leave the coverage gap and enter catastrophic coverage. At this point, you have only a small co-pay on covered prescriptions for the rest of the year.
Leaving the Coverage Gap
As stated above, you leave the coverage gap once your out-of-pocket spending for the year reaches $5,000 (in 2018). Unfortunately, it isn’t as simple as totaling your receipts. Fortunately, it’s actually in your favor that calculating your out-of-pocket costs while in the coverage gap is a bit more complicated.
Calculating your out-of-pocket costs
Medicare calculates your prescription costs differently for brand name and generic drugs. We look first at brand name prescription drugs.
Brand name calculation
In 2018, your maximum cost for brand name drugs while in the coverage gap is 35 percent (some Part D plans charge a lower percentage). But, 85 percent of the drug’s price counts toward the out-of-pocket costs that get you out of the donut hole. That 85 percent includes what you pay plus 50 percent of the manufacturer’s discount. The calculation looks like this:
In the above example, the cost of the drug is $68. Although your cost is only $23.80, the amount that goes toward getting you out of the donut hole is $57.80.
Your cost on generic prescriptions is 44 percent in 2018. Unlike brand name prescriptions, this is the only amount counted toward your out-of-pocket costs to help you leave the coverage gap. The calculation looks like this:
Costs that Count Toward Entering and Leaving the Donut Hole
Medicare counts certain costs toward entering and leaving the donut hole. The out-of-pocket costs that help you enter the coverage gap include your yearly deductible as well as any co-pays and co-insurance. To get out of the coverage gap, Medicare counts your brand name drug discount and what you pay out-of-pocket.
You do have some out-of-pocket costs that don’t count for either entering or leaving the donut hole. This includes your monthly Part D premium, and dispensing fee charged by your pharmacy, and anything you pay for prescriptions not covered by your plan.
Finding the Perfect Part D Plan
Do you have questions about your Medicare Part D plan? Not sure how to find the best plan for your needs? Call us toll-free at 844-655-4347 to speak to one of our licensed agents. He or she will walk you through your options to help you find the ideal plan for you.