Coverage gaps can be frustrating, and you might have experienced a gap in your coverage if you have a Medicare Part D plan. This coverage gap is known as the Medicare Donut Hole and can certainly take you by surprise.
Imagine the shock when you head to the pharmacy to pick up your prescription medication and get hit with a much higher bill than usual. If you have a Medicare drug plan, you must know about the donut hole and how it works.
Keep reading as we provide all the details on Medicare’s donut hole coverage gap. We’ll explain what it is, how it works, and some ways to avoid it.
What Is The Medicare Part D Donut Hole?
The Medicare Part D donut hole is a gap in your Medicare prescription drug coverage during which you must pay more for your medications.
Your plan typically requires the payment of a copay or coinsurance amount for brand-name drugs and generic drugs. However, there is a limit to what your drug plan will pay. Your benefits are reduced once you hit this initial coverage limit, and your out-of-pocket costs will increase. When this happens, you are in the “donut hole.”
Medicare also has what is known as catastrophic coverage. This is an out-of-pocket maximum that you are required to pay each year. Once you hit this threshold, you have exited the donut hole, and your coverage ramps up again.
Your prescription drug costs can sometimes increase substantially while you are in the gap, although recent legislation has attempted to limit the amount of the increase. We will discuss those changes later in this article.
How The Donut Hole Works
Here is a more detailed look at how the donut hole works. When you head to the pharmacy to get your prescription drugs, you will usually need to pay either a copay or a coinsurance amount.
- For example, you might pay a $25 copay for brand-name drugs. Let’s assume that you have already met your deductible for the year, so you would only owe $25 when you get your medication, regardless of the total cost of the medicine.
However, once the total amount you and your drug plan have paid exceeds the yearly limit, you will enter the donut hole or coverage gap. In 2024, this limit is $5030. Remember that this total includes both the amounts you have paid and the amounts your drug plan has paid.
While in the coverage gap, your portion of the drug costs will increase. This means that your prescription drug costs will rise because Medicare will not cover as much of the cost as they did before you entered the gap.
Your out-of-pocket costs increase as you continue to purchase medications while in the gap. Once your total out-of-pocket costs hit $8,000 for 2024, you will exit the coverage gap. Your plan coverage will ramp back up for the rest of the year.
Remember that the totals used for calculating the coverage gap start at the beginning of each year.
KEY TAKEAWAYS
- The Medicare Part D “donut hole” is a gap in your Medicare prescription drug coverage where you must pay more for your medication.
- Currently, the only way to avoid the donut hole is through enrollment in the Medicare Extra Help program that offers assistance for those unable to afford their medications.
- The Affordable Care Act, enacted in 2019, began reducing the impact of the donut hole. You are no longer responsible for paying 100% of the drug costs in the coverage gap, instead you pay 25%.
How To Get Out Of The Medicare Part D Coverage Gap
Once you have entered the Medicare Part D coverage gap, the only way to exit the gap is to hit the catastrophic coverage limit. Thankfully, your out-of-pocket costs count toward this limit and any expenses covered by the drug manufacturer for name-brand drugs.
Let’s look at a quick example. Suppose you are in the coverage gap and must purchase a brand-name medication costing $100. There is also a $2 pharmacy dispensing fee, bringing the total price to $102. You would be responsible for 25% of the cost of the drug and the dispensing fee. So, you would be required to pay $27.00 in this case. The manufacturer also discounts the drug at 70%. Thus, the $70 discount plus the $27.00 you paid would count toward your out-of-pocket limit.
- Any manufacturer discounts for generic drugs, they do not count toward your out-of-pocket limit. Here are the items that count toward the coverage gap — deductibles, copays, coinsurance, and manufacturer discounts on brand-name medications in the coverage gap. The following items do not count toward your limit — monthly premium payments, pharmacy dispensing fees, and costs for non-covered drugs.
As you purchase medication throughout the year, you get closer to the annual out-of-pocket maximum. In 2024, that amount is $8,000. Once you hit that mark, your catastrophic coverage kicks in, and Medicare begins to cover most of your costs again, although you might still need to make a small copay for some medications. Under your catastrophic coverage, you will only be responsible for 5% of the cost of the drug.
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Recent Changes To The Medicare Donut Hole
In the past, once you left your initial coverage period and entered the donut hole, you were responsible for paying 100% of the drug costs you incurred in the coverage gap. This rule was in effect until 2019. However, the Affordable Care Act has gradually closed the donut hole to lower healthcare costs for seniors and others on Medicare. Now, you are no longer responsible for paying 100% of the drug cost in the coverage gap. Instead, you are only required to pay 25% of the cost of the drug.
Medicare beneficiaries have seen a considerable benefit from this new rule as some people were greatly affected by the coverage gap each calendar year. Although the gap will still affect those people, it will not hit their wallets nearly as hard as before 2019.
This results in lower costs for Part D prescription drug plan participants. Since so many of those participants rely on Social Security as their primary source of income, they welcome any reduction in their overall health insurance or health plan costs.
*Due to continued changes in prescription drug laws, the “donut hole” or coverage gap will end on December 31, 2024. Starting in 2025, all Medicare plans will include a $2,000 cap on out-of-pocket expenses for prescription drugs covered by the plan.
TIP
The Medicare Part D coverage gap (donut hole) will disappear at the end of 2024. Beginning in 2025, all Medicare prescription plans will include a $2,000 cap on out-of-pocket expenses. This change will significantly reduce Medicare beneficiaries’ overall cost of prescription drugs.
Tips For Avoiding Medicare’s Donut Hole
So, is there a way to avoid the donut hole altogether? Yes, but it won’t apply to everyone. If you are eligible for enrollment in the Medicare Extra Help program, you should get signed up immediately. The donut hole coverage gap will not apply to those who receive Extra Help assistance.
- Extra Help is a financial assistance program that helps cover Medicare Part D costs for those who cannot afford their medications otherwise.
- You might be able to avoid the donut hole if you are also enrolled in Medicaid.
- Even if you can’t avoid the donut hole altogether, you should talk to your pharmacist about any potential pharmaceutical assistance programs for which you might qualify. Many drug manufacturers offer discounts and rebates, and there are also other programs available for financial assistance.
While these are not technically prescription drug benefits associated with Original Medicare, these programs can sometimes save you a lot of money on the cost of your prescriptions.
Finally, ensure you find the right Medicare prescription drug plan for you. You might even be able to find a plan that does not include this coverage gap. While most plans have the donut hole, the details of each plan are slightly different. You can use the Medicare plan finder tool to find and compare plans and select the one that best fits your needs.
Also, signing up during the proper enrollment period can save you money on late enrollment penalties and fees. If you need assistance, you can always seek the help of a licensed insurance agent in your area.
The Bottom Line
The Medicare donut hole is a coverage gap in most Medicare drug plans. It runs from the time you hit the limit in your initial coverage stage until you hit your catastrophic coverage limit.
While the Affordable Care Act has dramatically reduced the financial impact of the donut hole, it still causes most Medicare beneficiaries to see an increase in their prescription drug costs if they enter the coverage gap.
Frequently Asked Questions
The donut hole exists because of the way the Medicare rules are written. Medicare has a limit to its coverage for prescription drugs during each calendar year. Once you hit this limit, your coverage is reduced.
This causes you to spend more money out of your pocket to pay for your prescription drugs. If you spend enough to enter your Medicare catastrophic coverage, your portion of the costs will be lowered again.
Almost everyone who is eligible for Medicare and enrolled in a Medicare drug plan is eligible for the donut hole. The one exception is for people who are enrolled in the Medicare Extra Help program.
They will not experience the coverage gap introduced by the donut hole. Some Medicare Advantage plans, or Medicare Part C, might handle the donut hole differently, so make sure that you read your plan details to determine exactly how the donut hole will affect you.
For most people, there is no way to get around the donut hole. If you are enrolled in Extra Help, then you can get around the hole. You will not enter the coverage gap that most Medicare enrollees have to worry about.
Once you have entered the hole, you must pay enough out-of-pocket expenses to kick in your catastrophic coverage. Once you hit that limit, you will exit the donut hole. Medicare will then begin to cover 95% of the cost of your prescription drugs.
The initial coverage limit for 2024 is $5,030. Once you hit this amount, you will enter the coverage gap. You need to exceed $8,000 in total out-of-pocket costs to exit the gap.
Remember that drug manufacturer discounts on brand-name medications will count toward that limit. So, you might not need to pay the entire amount necessary to exit the hole out of your pocket.
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