Medicare Part D coverage is supplemental health coverage for prescription drugs related to Medicare plans that you have to sign up for at an extra cost. Unfortunately, even though you pay extra for the coverage, just like many health plans, there are out-of-pocket expenses, deductibles, and co-pays that may apply. One of the most commonly discussed aspects is the "Donut Hole."
What Is the Donut Hole in Prescription Drug Coverage?
The Donut Hole is the coverage gap in Medicare Plan D prescription drug plans where you have limited coverage and pay more out of your own pocket for your prescription drugs until you reach the limit in the gap. Once you and your plan have spent a certain amount of money on covered drugs (defined as the sum of what your plan has paid, your deductible, and co-pays), then you fall into what is known as the Donut Hole or coverage gap.
The amount is $4,130 in 2021. The amount changes from year to year.
Example of Coverage Limits and Thresholds for the Donut Hole
|Threshold When You Reach Donut Hole Amount||$4,430||$4,130||$4,020||$3,820||$3,750||$2,830|
|Threshold Where You're Out of Donut Hole and Into Catastrophic Coverage||$10,013||$9,314||$9,039||$7,654||$7,509||$4,550|
* Data in table adapted from "2022-2006 Medicare Part D Standard Benefit Model Plan Parameters," which provides a fully detailed data sheet back to 2006.
The Health Care Reform Law of 2010 provided legislation that is helping bring the costs down by increasing the threshold where the coverage gap begins and decreasing the amount paid while in the Donut Hole.
Once you're in the coverage gap, you'll pay no more than 25% of the cost for plan-covered brand-name drugs and 75% for generic drugs. The full cost of the drug will count for your out-of-pocket spending.
How Does the Donut Hole Work in Medicare Part D Coverage?
Medicare part D coverage works by providing coverage for you up to a specified limit. It works in three stages.
- First, you pay out of pocket 100% until you reach your plan deductible.
- Then, once you've paid for your prescriptions up to the deductible in your policy, you pay a certain percentage of your covered prescription drug costs, and Medicare pays the rest.
- Once the total amount of prescription drug costs reaches $4,130, then you are in the Donut Hole coverage gap. If you and your plan coverage never reach costs of $4,130, then you won't hit the Donut Hole.
- If you hit the Donut Hole, then you become responsible for higher percentages of your prescription drug costs until you hit the maximum out-of-pocket expenses limit. In 2021, the limit is $6,550 in out-of-pocket costs. Once you hit this limit, then you get out of the Donut Hole and into catastrophic coverage.
Do You Keep Paying Your Premium When in the Coverage Gap?
Yes, you must pay your premium even when you reach the coverage gap. The premium is payable during the entire term of coverage. Being in the Donut Hole does not mean you are not covered, it means you have reached the limit in your insurance contract that now requires you to pay until you reach the limit of $6,550. You must pay your monthly premiums during the entire term or year of coverage. The premium you pay does not count as part of the out-of-pocket limit.
What Amounts Count in the Donut Hole or Coverage Gap?
According to Medicare.gov, the following items will count toward filling the coverage gap:
- Discounts you get on brand-name drugs
- The amount you pay out-of-pocket in the coverage gap for drugs that are covered.
- Payments for your drugs made on your behalf by a third party like a friend, family member, or charitable group, for example.
The following do not count:
- The premiums you pay for your coverage
- Amounts you pay out-of-pocket for drugs that are not covered
- Unapproved purchases of drugs outside your coverage network
- The value of free drugs, such as those received for free from your doctor as samples
- Costs of drugs bought from foreign countries may also be excluded
Is Coverage Different for Brand Name Drugs and Generic Drugs?
It is important to note the differences between the way prescriptions for generic and brand name drugs differ and contribute to the out-of-pocket expenses required to reach catastrophic coverage.
Examples of Brand Name vs. Generic Drug Costs in the Donut Hole Coverage Gap
- Jeff goes to the plan-approved network pharmacy to fill a prescription and gets a covered generic drug while he is in the coverage gap. The cost of the drug is $50 and the pharmacy fee is $2. He must pay 51 percent of the $52 which equals $26.52. This amount will count toward his out-of-pocket spending and will contribute to the amount being tallied to help him get out of the coverage gap.
- Jane goes to a plan-approved network pharmacy to fill a prescription for a covered brand-name drug. She has already reached the coverage gap in her plan. The drug costs $50 and the pharmacy fee is $2. Jane has to pay 40 percent of the cost because she is in the coverage gap and this is the amount for brand name drugs. Forty percent of $52 is $20.80. The manufacturer also paid part of the cost via a discount payment. For example, if the amount of the discount was $30, even though Jane only paid $20.80 for the drug, the actual amount paid for the drug by her, and the manufacturer would be $20.80 plus $30, so $50.80 will count toward her out-of-pocket spending and will contribute to the amount being tallied to help her get out of the coverage gap.
Always be sure that the pharmacy you choose falls into your approved healthcare network or you may not be covered.
Getting Discounts on Medication in the Donut Hole
Getting discounts on brand-name drugs is very important to help you get out of the Donut Hole and save money faster. Manufacturer contributions by way of "discounts" on brand name drugs count toward the amounts being added to "get you out of the Donut Hole." It is worth making sure you are getting any discounts you are entitled to on brand-name medicine, as you can see in the examples we used above.
You can find the information about discounts in your Monthly Explanation of Benefits. If you do not have a discount in your plan or can't find out, you can ask for one or find out more by contacting your plan. If you feel you should have a discount, but your plan says you are not entitled to one, you have the option to file an appeal.
Why Shopping for Plan D Coverage Is Important in Saving Money
Every year, insurers revise rates, in addition, your own situation may change from year to year. Many people assume because they got the best price one year, they are still getting the best possible health plan at renewal. This may not be the case.
As insurers revise premiums, you may fall into paying more than you should be paying, and if you are worried about the money you might lose once you hit the Donut Hole coverage gap, then you should also look at taking the time to review all your options. Shopping could save you hundreds of dollars; it is worth the trouble. Here is an excellent resource to help you compare prices of Medicare Plan D coverage online.
How Can You Save Money on Prescription Drug Costs?
- By asking your doctor if there are less expensive drugs or finding generic alternatives to brand name drugs which may be less expensive before you are in the coverage gap will delay how quickly your reach the coverage gap and you will save money.
- Always make sure that whatever drug is prescribed to you is covered by your plan.
In our article on Saving Money on Health Insurance Plans, we offer a number of tips to save money on health care plans and prescription drugs. Caitlin Donovan, Director of Outreach and Public Affairs at National Patient Advocate Foundation, recommended shopping for your health insurance and exploring all your options. She offered this tip to help save on prescription drug plans:
Check different pharmacies to see who offers the best price for your prescription. If you fall below a certain income level, the manufacturer may have a program for you to help you access that medication.
Can You Avoid the Coverage Gap in Medicare Part D?
Not everyone on Medicare Part D will hit the Donut Hole; people who qualify for extra help programs may not have to pay in the Donut Hole. "Full extra help" or "partial extra help" can help people save money especially when they are in low-income brackets. Information is available on the official Medicare website.
What Is Catastrophic Coverage?
Catastrophic coverage phases in once you have reached the threshold of the Donut Hole. Your monthly statement will keep track of how much you have paid toward the coverage gap. Then once you have reached your limit and are into Catastrophic Coverage your plan will start to contribute more.
Depending on whether you are using generic or brand name drugs, as an example, you could be looking at paying as little as 5 percent out-of-pocket, as compared to the examples above where you are paying 40 percent or 51 percent of the costs when you're in the Donut Hole. Your plan will pay 95 percent once you're in catastrophic coverage. Check for the details for your plan's catastrophic coverage in your specific plan and coverage situation.
It is important to enroll in the Medicare Part D coverage at the same time you enroll in Part B. This will help you avoid a penalty. If you sign up late or miss the enrollment period you will pay additional premiums as part of the Part D penalty.
What If You Don't Want to Pay the Penalty? Can the Part D Penalty Be Waived or Removed?
If you are required to pay a penalty on your Medicare Part D coverage, you will be told about it and the penalty becomes part of the premiums. You will have to pay it if you want to participate in the plan. However, if you feel that you should not have to pay the penalty, you have the option to apply to have the penalty reconsidered. The Medicare contractor will then review their decision with the reasons and supporting information you provide them about why you should not have to pay the penalty and you will receive a reconsideration decision.
The reconsideration is not an immediate decision, it will take time. Once the decision is made you will receive a notice advising you of the decision. You will still have to pay the penalty while you wait for the decision to be made.
Medicare Part D Penalty Reconsideration
If the decision after reconsideration is maintained, and the penalty is not removed, then you have to pay the penalty as part of your premium.
If the decision after reconsideration is that you do not have to pay the penalty, then you will receive a notice outlining the new calculations. Your Medicare Contractor may decide that all of the penalty is wrong, or only part of it. Until you receive their decision in writing, you will have to continue to pay the premiums you agreed to when you signed up. The letter you receive explaining the decision will outline the new costs and revised premium after the Medicare Contractor reviews the file.
Understanding Health Insurance Options for Your Drug Plan: A Few Additional Resources
If you need help understanding your Medicare options or Prescription Drug Costs, you may also consider:
- Contacting your local State Health Insurance Assistance Program who can provide you with local information that may be able to help you.
- Compare costs of various Medicare Part D plans online to stay on top of pricing and premiums that may be available to you.
- Learn about whether your state has a Pharmaceutical Assistance Plan to help you.
- The National Patient Advocate Foundation offers a series of webinars to help patients, including one on Affording Medications and Prescribed Drugs.
This article provides general information to provide you with resources and help you understand the concepts of the coverage gap and "Donut Hole;" it's only a guide. Please make sure and check with your specific plan coverage representative or licensed agent or broker for the exact conditions and limitations of your health care prescription drug coverage and how it will work in your situation.