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How to Survive the Donut Hole

The majority of Medicare Part D prescription drug plans have a coverage gap known as the “Donut Hole.” Of course, not everyone will fall into this gap, as there are pre-defined limits that change annually as the Government looks to eliminate the donut hole entirely by 2020.

You only enter the coverage gap after you have spent a certain amount on prescription drugs, and you exit the gap once you reach an upper limit, known as Catastrophic Coverage. This ensures you only spend a small copayment or coinsurance amount for prescription drugs (if covered by your plan) for the rest of the calendar year.

You will not enter the donut hole if you receive extra help paying for Part D costs.

In 2016, you are in the coverage gap once you spend $3,310 on prescription drugs, and you exit when you spend $4,850 in a year. As a result, the 2016 total value of the coverage gap is $1,540.

Cost of Brand Name Drugs in the Donut Hole

In 2016, you must pay 45 percent of your plan’s cost for brand name, covered prescriptions. Note that you need to purchase this medication via direct mail or at a pharmacy in order to receive the discount.

As part of the initiative to reduce costs in the donut hole, 95 percent of the price of the drugs counts towards your out-of-pocket expenses (this includes a 50 percent manufacturer discount). However, the amounts your plan pays towards the dispensing fees (55 percent of the fee) and the drug cost (5 percent of the price) do NOT count towards your out-of-pocket expenses.

Here’s an example:

You have reached the donut hole on your prescription drug plan but need to have another prescription filled for a brand name drug. The drug costs $100 along with a $5 dispensing fee. You will pay $45 of the plan’s cost for the drug ($100 x .45) along with $2.25 of the dispensing fee ($5 x .45), so your total out-of-pocket expense is $47.25.

However, $97.25 of the cost counts toward your out-of-pocket expenses because the 50 percent manufacturer discount is added ($100 x .5 = $50).

Cost of Generic Drugs in the Donut Hole

In 2016, you must pay 58 percent of the cost of generic drugs; this amount will decrease in 2017 and in subsequent years until 2020 when it reaches 25 percent of the total cost. For generic drugs, only your actual out-of-pocket costs count towards escaping the donut hole.

Here’s an example:

You have reached the coverage gap but need a prescription for generic drugs. The drug costs $30 along with an additional $3 dispensing fee. You must pay 58 percent of the total cost of $33, which comes to $19.14 in out-of-pocket costs. Only that amount counts towards leaving the coverage gap.

If your plan includes coverage in the donut hole, you may receive a discount once the plan’s coverage applies to the drug’s cost. The discount for brand name prescription drugs applies to the rest of the amount owed[1].

Cutting Costs in the Donut Hole

Although the size of the donut hole has shrunk over the years, it is still very valuable to have a strategy in place if you are likely to reach the coverage gap at some point during the year. By following the tips below, you could save hundreds if not thousands of dollars in prescription drug fees.

Go Generic

It is possible to save up to 80 percent on the cost of a prescription if you choose generic drugs over their brand name counterparts. In 2008, the National Association of Chain Drug Stores revealed the average cost of brand name prescriptions was almost $138, while the average for generic prescriptions totaled just over $35.

For example, Glucophage is a drug to treat Type 2 diabetes; it costs $204 for a 90-day supply. Metformin is the generic version of the drug, and a 90-day supply is available for just $10[2]!

Bear in mind that generic drugs need to have the same strength, active ingredient, and form of dosage and administration as the brand name product. Generic drugs must also meet strict FDA standards before going on sale, and they typically work as effectively as brand name drugs do. The patents for a host of prescription drugs run out each year, which means new generic versions become available[3].

Order a Larger Supply

If you have a chronic condition such as diabetes, it may make sense to ask your physician for a 90-day supply of the drug; several Medicare Part D plans provide a discount for using their mail-order service. It is also common for local pharmacies to sell 90-day supplies for the same price as a mail-order plan.

Retail Cost Sharing

Some plans offer Retail Cost Sharing, which refers to reduced out-of-pocket expenses if you choose selected pharmacies. For example, you may find your prescription drug costs $20 from a pharmacy with standard cost sharing but only $9 from one with retail cost sharing.

Available Assistance

Check out your state’s prescription assistance program, as certain states offer help when it comes to paying drug costs and monthly premiums. Alternatively, you could try the State Health Assistance Program (SHIP) for help. Finally, you can find out if you are entitled to assistance on the Extra Help program, estimated to be worth $4,000 a year. You can learn more on the Social Security website[4].

Although the donut hole is scheduled to close in 2020, it is still a potentially expensive place to be, so take great care to avoid losing money while in the coverage gap.







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