What is the Medicare Donut Hole?

Senior couple discusses the Medicare donut hole

Most Medicare plans that include prescription drug (Part D) coverage have a gap known as the “donut hole” in Medicare. This gap happens between the plan coverage limit and the out-of-pocket maximum. In 2018, that happens from $3,750 to $5,000. The gap between these two numbers is known as the Medicare “donut hole.”

Using the amounts for 2018 Medicare prescription drug coverage, here’s how it works:

  •  You pay your monthly Part D premiums throughout the duration of your coverage
  •  You pay for the full cost of your drugs until you reach your plans deductible (if your plan has one)
  •  After you reach your deductible, your Part D coverage pays its share until you reach the coverage limit, which is $3,750 for 2018
  •  Then, you enter the coverage gap, or the donut hole. Not everyone will reach this phase. If you and your plan combined spend less than $3,750 in prescription drugs, you don’t have to worry about this gap in coverage.

Inside the Medicare Donut Hole
You would have paid 100 percent of your prescription drug costs inside the Medicare donut hole before 2011. Now, the discount will continue to increase each year until 2020 when you will pay just 25 percent of the cost.

Once you reach the gap, you pay a percentage of drugs covered by your plan. In 2018, you will pay 35 percent for brand name drugs and 44 percent for generics. In 2019, you will pay 30 percent for brand-name and 37 percent for generic. In 2020 and beyond, you’ll pay just 25 percent for all covered drugs.

Exiting the Donut Hole
You may be able to get out of the coverage gap. In 2018, you can exit the Medicare donut hole when your costs exceed $5,000. Then, you will have catastrophic coverage. This means you pay just a small percentage (usually just 5 percent) of your drug costs for the rest of the year.

The $5,000 maximum includes your yearly deductible, copayments and coinsurance during and before the gap. It also includes the 50 percent manufacturer discount for brand-name drugs while in the coverage gap. Your plan premium, costs for drugs that aren’t covered and any pharmacy dispensing fees do not count.

Avoiding the Donut Hole
If you are wondering how you can avoid the Medicare donut hole, there is a way. Try these things to help reduce drug costs:

  •     Order by mail if there is a discount
  •     Buy generics when possible
  •     Pay attention to the formulary for covered drugs

If you have limited income or get financial assistance, you may qualify for Extra Help. Extra Help is a government program through Social Security that provides financial assistance for Part D coverage. You don’t have to worry about the coverage gap if you have Extra Help.

Before purchasing Part D coverage, be sure you know the details of your plan so that you are prepared if you reach the Medicare donut hole.

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