The Medicare Part D coverage gap, also known as the “donut hole”, is present in nearly every Medicare prescription drug plan. It places limitations on coverage for drug expenses between specified values.
In 2021, the gap starts when a beneficiary exceeds $4,130 in covered expenses. It ends after the beneficiary pays $6,550 for drugs out of pocket. At that point, catastrophic coverage kicks in. It covers 95% of the remaining prescription costs for the year. Not everyone who has Part D will face this gap in coverage, but many people do.
The good news is that the coverage gap has slowly shrunk since 2010 thanks to the Affordable Care Act. Currently, beneficiaries only need to pay 25% of the cost of brand-name and generic drugs while in the donut hole period.
Why the Medicare coverage gap closed
Prior to 2006, Medicare beneficiaries did not receive any sort of prescription drug coverage. 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 could leave beneficiaries struggling to cover their expenses.
When 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.
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The original purpose of the donut hole was to keep program costs for Medicare low. It was also supposed to encourage beneficiaries to use cheaper generic drugs rather than costly brand-name prescriptions.
However, the hardship caused by the coverage gap has outweighed the benefits for many people. This is especially true. for those who rely on drugs that do not have affordable generic alternatives.
Who pays for drugs in the coverage gap?
The big difference for consumers is who is expected to pick up the costs. Since the passing of the Bipartisan Budget Act of 2018, pharmaceutical companies are required to offer discounts to Medicare beneficiaries. They must 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?
Some say that the donut hole “closed” in 2020, however, recipients need to be aware that there continues to be prescription drug coverage gaps.
When in the coverage gap phase, brand-name and generic drugs are discounted 75%. This is significantly more than in previous years when the donut hole was larger.
Still, you will have out-of-pocket expenses before catastrophic coverage kicks in and covers all but 5%. It is not likely that discounts will reach 100%, which would close the donut hole completely.
What’s changing in 2021?
The changes to Medicare Part D in 2021 include the following:
- The standard yearly deductible limit will rise from $435 to $445 (deductibles are based on the plan you have chosen)
- The initial coverage limit will rise from $4,020 to $4,130
- Catastrophic coverage will kick in after $6,550 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 $6,550 threshold for catastrophic coverage, several expenses are applied. Your deductible, coinsurance, and copayments all count 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.
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What if you want to change 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:
- swap between Original Medicare Parts A and B to Medicare Advantage, also known as Part C.
- change from one Medicare Advantage plan to a different one.
- sign up for a prescription drug plan under Medicare Part D if you do not already have one.
- modify your existing Medicare Part D plan or change to a different one.
- cancel your Part D plan.
Adding drug coverage
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 now that the coverage gap has closed, you will be responsible for a one-time late enrollment penalty.
Swap between Medicare Advantage and Original Medicare
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 Open Enrollment Period for Medicare Advantage begins on January 1 and lasts until March 31.
If you change from Medicare Advantage to Medicare Parts A and B during this time period, you have until March 31 to enroll in a Part D prescription drug plan.
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 on March 1.
Is Medicare Part D right for me?
If you are eligible for Medicare, prescription drug coverage is 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.
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.
Recent changes to the Medicare coverage gap make it more affordable than ever to obtain the prescription coverage you need. Talk to your insurer for more information so you can make the best choice for your needs.
Published Aug. 10, 2018. Revised by the author for republication 1/19/2021.