The Medicare Donut Hole is an informal term for the Medicare Part D coverage gap. This is a gap present in nearly every Medicare drug plan that places limitations on coverage for drug expenses between specific values.
In general, the gap starts when a beneficiary exceeds $3,750 in covered expenses and ends after paying $5,000 for drugs out of pocket. At that point, catastrophic coverage kicks in that covers 95 percent of the remaining prescription costs for the year.
Not everyone who has Medicare Part D will face this gap in coverage, but many people do. The good news is that this donut hole has been slowly closing since the 2010 thanks to the Affordable Care Act and the gap will continue to close even more in the next two years. It’s estimated that by 2020 beneficiaries will only need to pay 25 percent of the cost for brand-name drugs while in the donut hole period.
Why the Donut Hole is Closing
Prior to 2006, Medicare beneficiaries did not receive any sort of prescription drug coverage. Medicare Part D was introduced in 2006 to solve this problem and provide coverage for prescriptions. However, Part D has always had gaps in coverage that can leave its beneficiaries struggling to cover their expenses.
When Medicare Part D was first introduced, beneficiaries were responsible for the full cost of their prescriptions once the donut hole gap was reached. That figure has slowly gone down each year under the Affordable Care Act, but the donut hole is now expected to close completely by 2019.
The original purpose of the donut hole was to keep program costs for Medicare low and encourage beneficiaries to use cheaper generic drugs rather than costly brand-name prescriptions. However, the hardship caused by this coverage gap has outweighed the benefits for many people, especially those who rely on drugs that do not have affordable generic alternatives.
Who Pays for Drug Coverage in the Donut Hole?
Although the coverage gap is closing, it does still exist. The big difference for consumers is who is expected to pick up most of those costs. After the passing of the Bipartisan Budget Act of 2018, pharmaceutical companies are required to offer discounts to Medicare beneficiaries that mirror what they offer to other insurance providers.
In effect, this means that pharmaceutical companies themselves are expected to cover more of the costs for prescription and generic medications for individuals who fall within the coverage gap.
Is the Coverage Gap Going Away Entirely?
While it’s certainly good news that the donut hole is closing in 2019, Medicare recipients need to be aware that there will continue to be coverage gaps for prescription drug costs.
Your out-of-pocket expenses will be reduced due to discounts from the drug company, but you will still be responsible for coinsurance, deductibles, and copayments up to the limit where catastrophic coverage kicks in.
Because this figure resets each year, your out-of-pocket prescription costs may still add up significantly over the years. Depending on your individual needs, it may be a good idea to seek additional insurance that can help to cover the gaps left by Medicare Part D.
What’s Changing in 2019?
As of 2018, individuals receiving Part D coverage pay both an annual deductible and 25 percent of their own drug costs up to the coverage gap. During the coverage gap, beneficiaries pay 35 percent on brand-name drugs and 44 percent for generic drugs up until the catastrophic coverage kicks in. This resets each year, giving seniors a hefty $5,000 threshold to meet annually before receiving assistance with the gap.
After 2019, this gap will close so that the plan itself will cover 75 percent of brand-name drug expenses all the way to the $5,000 limit rather than dropping off at an earlier point. This effectively closes the donut hole for prescription drugs.
Generic drugs will not receive as much assistance; individuals will pay 37 percent of their price rather than 25 percent. However, because generic drugs tend to be much more affordable, this should not be as much of a problem.
The changes to Medicare Part D in 2019 include the following:
- Beneficiaries will pay 25 percent of their brand-name drug costs and 37 percent for generic drugs
- The standard monthly deductible will rise from $405 to $415
- The initial coverage limit will rise from $3,750 up to $3,820
- Catastrophic coverage will kick in after $5,100 has been spent
As a Medicare recipient, you will receive an Explanation of Benefits (EOB) that will detail how your coverage has been allotted to pay for generic and brand name prescription drugs.
When it comes to reaching the $5,100 threshold for catastrophic coverage, several expenses are applied. Your deductible, coinsurance, and copayments are all applied toward the out-of-pocket expenses.
The drug company’s manufacturer discount also applies. However, your Part D premiums and any prescription costs that fall outside of the plan do not count toward the out-of-pocket expenses necessary to reach the threshold.
What If You Want to Change Your Plan?
With the upcoming changes to the way prescription drug coverage will be handled under Medicare Part D, you may wish to revise your plan.
Medicare beneficiaries are able to make changes on an annual basis during the Medicare Annual Election Period. This enrollment period is open between October 15 and December 7. Changes made to a plan at that time will reflect on your policy beginning January 1.
During the Annual Election Period, you can make several types of policy changes:
- You can swap between Original Medicare Parts A and B to Medicare Advantage, also known as Part C.
- You can change from one Medicare Advantage plan to a different one.
- You can sign up for a prescription drug plan under Medicare Part D if you do not already have one.
- You can modify your existing Medicare Part D plan or change to a different one.
- You can cancel your Part D plan.
If you do not currently have prescription drug coverage and wish to add it during the Annual Election Period, you may need to pay a late enrollment penalty. This penalty is assessed any time you have gone without prescription drug coverage for 63 consecutive days and you did not enroll immediately upon becoming eligible.
In other words, if you have declined Medicare Part D in the past but would like to add it in the future now that the coverage gap is closing, you will be responsible for a one-time late enrollment penalty.
If the only change you wish to make is to swap between a Medicare Advantage plan and an Original Medicare plan, you have an additional opportunity to do so. The disenrollment period for Medicare Advantage begins on January 1 and lasts until February 14.
If you change from Medicare Advantage to Medicare Parts A and B during this time period, you have until February 14 to enroll in the prescription drug plan covered by Part D.
When making this change, remember that your coverage goes into effect on the first day of the month after enrollment. Therefore, if you enroll on February 14, your coverage will begin March 1.
Is Medicare Part D Right for Me?
If you are eligible for Medicare, enrollment for some parts of the plan is mandatory. However, prescription drug coverage continues to be an optional form of coverage. It’s up to you to decide whether it’s worth signing up for Medicare Part D or an all-inclusive Medicare Advantage Plan.
If you have drug coverage from another group health plan, you probably do not need to enroll in Medicare Part D. If you do not, it may be best to look at your options for obtaining prescription coverage through Medicare.
You may want to add Part D or change to a Medicare Advantage Plan or Medicare Cost Plan that will cover your medical expenses and the price of your prescriptions.
Ultimately, it’s your decision which type of coverage will be best for your individual situation and medical needs. Current changes to the Medicare coverage gap make it more affordable than ever to obtain the coverage you need for your prescriptions. Talk to your insurer for more information so you can make the best choice for your needs.