Perhaps you have seen the phrase “donut hole” concerning Medicare coverage. Are you wondering what that refers to and what it means for your prescription coverage? If so, you will find the answer here.
Understanding the particulars of the donut hole can help you manage your prescription expenses and help you choose the right Medicare plan.
What is covered under Part D?
Part D of Medicare is the prescription drug coverage portion of the program. It was introduced in 2003 and helps beneficiaries pay for medications, including generic and brand-name drugs. Private insurers provide Part D plans in tandem with Medicare to provide coverage for various medicines.
What is the “donut hole”?
Simply put, the donut hole (or “coverage gap”) refers to a period when your prescription costs begin to exceed your plan’s limits. Still, you are not yet eligible for catastrophic coverage.
There are up to four stages of coverage in your Medicare Part D plan:
- Annual deductible (if your plan has one)
- Initial coverage
- Coverage gap, or donut hole
- Catastrophic Coverage
Let’s break those down individually.
First, your plan may have a deductible, meaning you are responsible for your prescription costs up to the deductible amount during this period. The annual deductible maximum for 2023 is $505.
Many plans have an annual deductible that only applies to brand-name medications and not to generics. This can be a significant advantage if you are only taking generic medications.
Next is the initial coverage level. This period begins when your expenses get higher than your deductible or, if there is no deductible, with your first prescription. This phase continues until you, and your insurance plan together have spent $4,660 (2023).
You enter the donut hole when your prescription costs exceed that limit. At that point, you become responsible for up to 25% of your drug costs (both generic and brand-name) until your personal out-of-pocket expenses reach $7,400(2023).
If your prescription costs rise higher than the amount for that year, you are now in the “catastrophic coverage level” You now pay either 5% of the drug cost or a fixed co-pay set each year by Medicare, whichever is higher.
You will remain in the Catastrophic coverage level until the end of the calendar year when your coverage will reset and you will start again with your yearly deductibles.
How are “out-of-pocket” expenses calculated?
Your coverage amounts are calculated by your “out of pocket” expenses. How these amounts are calculated will depend on whether the medications are brand names or generic.
Once you have entered the donut hole, Medicare covers 75% of generic medications, and you must pay the remaining 25%. Only the amounts you pay for generic drugs will count toward the yearly totals that get you out of your coverage gap. Generally speaking, if you only receive generic medications, you are unlikely to enter the coverage gap.
Brand name prescription coverage is calculated differently. You will still only pay up to 25% of the cost. However, your out-of-pocket expenses include the manufacturer’s discount of 70%.
Let’s compare two medications that are both $60 with a $2 dispensing fee.
|Generic Medication||Brand Name Medications|
|You pay 25% $16.25||You pay 25% $16.25|
|Manufacturer’s discount $42.00|
|Total “out of pocket” spending: $16.25||Total “out of pocket” spending: $58.25|
How to manage high prescription needs
Prescription drugs are expensive, especially if you have complex health needs.
First, it is best to avoid entering the coverage gap and save money. How can you do this?
As mentioned, consider taking generic medications instead of the brand-name option. You can also take advantage of discounts, coupons and savings programs offered by pharmaceutical companies.
Additionally, talk to your doctors about managing your health needs without relying on prescription medication, such as lifestyle changes or treatments. Finally, contact patient assistance programs if you struggle to afford your medications.
Suppose you realize that entering the coverage gap is inevitable because of your high prescription costs. In that case, you will want to change your strategy. For example, have you considered a plan that includes some coverage during the coverage gap period? Are you eligible for Extra Help? If you receive assistance under the Extra Help program, the coverage gap does not apply to you.
In any event, having high prescription needs will be a significant factor when deciding what plan to choose. Make sure you research each plan carefully and find the one that will best cover your prescription drugs.
How to manage low prescription needs
Now you may be wondering, should I apply for Part D benefits or additional coverage if I am not on any or very few medications? Yes!.
Late Enrollment Penalty
First, Medicare has a late enrollment penalty equal to 1% of the national average Part D premium for every month you delay, rounded to the nearest $0.10. That penalty continues as long as you have Part D coverage and will increase as the national average premium increases.
For example, imagine you delay your prescription coverage for 23 months. Your monthly premium would total $7.70 in 2022 (23 months x 1% per month x the 2022 national average premium of $33.37, rounded to the nearest $0.10).
$7.70 may not sound like a lot of money, but remember that this is a monthly penalty that lasts forever. That’s $92.40 each year that could have been saved by just signing up for a cheap prescription drug plan to avoid a gap in your coverage.
Unexpected Prescription Costs
Illnesses and other types of health challenges can sometimes appear without warning. You might suddenly have much higher prescription costs than you had expected. You must be prepared to pay the total amount for those medications without any Part D drug coverage.
It is wise to apply for Part D or additional coverage as a safety net. Even if you are not currently on any medication, you can apply for a more economical plan and have some coverage. Then, you can adjust your plan during the next initial enrollment period if your coverage is insufficient.
What does this mean for you?
When managing your prescription needs, try to understand the available plans, the types of coverage you will need, and the actual cost to you during the coverage gap.
At The Medicare Family, we help you navigate all these definitions and help you choose the best plan for your family. Contact our expert team today to start saving on your prescription drugs. We can help you find the most affordable and comprehensive plan.