Coverage gaps can be frustrating, but 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 it 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 need to know about the donut hole and how it works. Keep reading as we give you all the details on Medicare’s donut hole coverage gap. We’ll tell you what it is, how it works, and some ways that you can potentially avoid it.
What Is The Medicare Part D Donut Hole?
The Medicare Part D donut hole is essentially a gap in your Medicare prescription drug coverage during which you will be required to 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. Once you hit this initial coverage limit, your benefits are reduced, and your out-of-pocket costs will be higher. When this happens, you are in the donut hole.
Medicare also has what is known as catastrophic coverage. This is basically 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 that you and your drug plan have paid exceeds the yearly limit, you will enter the donut hole or coverage gap. In 2022, this limit is $4,430. Remember that this total includes both the amounts that you have paid as well as the amounts that 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 increase because Medicare will not cover as much of the cost as they did before you entered the gap. As you continue to purchase medications while you are in the gap, your out-of-pocket costs continue to add up. Once your total out-of-pocket costs hit $7,050 in 2022, 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 the calculation of the coverage gap start over at the beginning of each year.
How To Get Out Of The Medicare Part D Coverage Gap
Once you have entered the Medicare Part D coverage gap, the only real way to exit the gap is to hit the catastrophic coverage limit. Thankfully, your out-of-pocket costs count toward this limit, as well as 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 need to purchase a brand-name medication that costs $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 $25.50 in this case. The manufacturer also discounts the drug at 70%. Thus the $70 discount plus the $25.50 that you paid would both count toward your out-of-pocket limit.
Any manufacturer discounts do not count toward your out-of-pocket limit for generic drugs. 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 continue purchasing medication throughout the year, you get closer to the annual out-of-pocket maximum. In 2022, that amount is $7,050. 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.
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 been gradually closing the donut hole in an effort to lower health care 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 huge benefit from this new rule as some people were greatly affected by the coverage gap each calendar year. Although those people will still be affected by the gap, it will not hit their wallets nearly as hard as it did prior to 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 main source of income, they welcome any reduction in their overall health insurance or health plan costs.
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, then you should get signed up right away. 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 might be unable to afford their medications otherwise. Likewise, 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 completely, 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, make sure that 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 at Medicare.gov to find and compare plans so that you can select the one that best fits your needs. Also, signing up during the proper enrollment period can save you some 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 that exists 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 greatly 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
Why does the Medicare donut hole exist?
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.
Who is eligible for the Medicare donut hole?
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.
How do you get around the donut hole?
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.
What is the Medicare donut hole for 2022?
The initial coverage limit for 2022 is $4,430. Once you hit this amount, you will enter the coverage gap. You need to exceed $7,050 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.