Medicare Donut Hole

The term “donut hole” was coined by ordinary people who use Medicare Part D. The donut hole is what Part D now refers to as the Coverage Gap. The reason it’s called the donut hole is because it falls in the middle of Part D coverage for a calendar year. Every Medicare Part D plan has a donut hole. The program is designed to encourage Medicare beneficiaries to choose generics or lower cost medication to keep Medicare’s total costs down.

What is the Medicare Donut Hole?

The Donut Hole, or Coverage Gap, stage of Medicare Part D, happens when the spending by you and your insurance company reaches $4,020 in 2020. Not everyone will reach the coverage gap.

During the Initial Coverage stage of Part D, you pay a copay for each medication. When you reach the gap, or donut hole, you pay a percentage of the medication cost. If your medication is expensive, you will pay more during the gap.

How Long Does the Donut Hole Last?

The Part D coverage gap begins when you and your insurance company have spent a combined total of $4,020 in 2020. Medicare sets the limits each year. You will be in the donut hole until out of pocket costs reach $6,350.

Medicare keeps track of the spending between you and your insurance company and after you have paid $6,350 in one calendar year, catastrophic coverage begins. During catastrophic coverage, the insurance pays for 95% of your medication. You will pay no more than 5% of the cost of medication through the end of the year.

Some plans will continue to offer copays during the coverage gap and you will get a discount on generic medications as well.

How Do I Know When I Reach the Coverage Gap?

Your insurance company will track your expenses. Every month, they will send you an Explanation of Benefits (EOB). It will show you how much money you’ve already spent on covered medication and how much money you have before you reach the coverage gap.

The cost of prescription drugs is not the only expenditure that counts toward the $6,350 annual limit. You can include your yearly deductible, coinsurance and copayments. Expenditures that DO NOT count toward your $6,350 annual limit include your Part D premium, a pharmacy dispensing fee, or the cost you pay out of pocket for drugs that aren’t included in your plan’s formulary.

Common Questions

How Do I Know When I Reach the Coverage Gap?

Your insurance company will track your expenses. Every month, they will send you an Explanation of Benefits (EOB). It will show you how much money you’ve already spent on covered medication and how much money you have before you reach the coverage gap.

The cost of prescription drugs is not the only expenditure that counts toward the $6,350 annual limit. You can include your yearly deductible, coinsurance and copayments. Expenditures that DO NOT count toward your $6,350 annual limit include your Part D premium, a pharmacy dispensing fee, or the cost you pay out of pocket for drugs that aren’t included in your plan’s formulary.

Do Medicare Advantage Plans Cover the Gap?

No. The Part D coverage works the same whether you have a standalone plan or if you selected a Medicare Advantage Plan. Some Part D and Medicare Advantage plans offer coverage of certain medications in the gap, but they are almost always coverage for the generic medication and not for brand names.

How Can I Avoid the Coverage Gap?

You can save money during the Gap by using generic drugs whenever you can. You can also work with your doctor to keep your medication costs down. Review all the medications you take with your doctor. He/she may be able to prescribe a lower price or similar medication that produces the same result.

What’s Excluded from the Coverage Gap?

A common question Medicare users ask is whether or not they can use their Medigap plan to cover the gap in their drug plan. They cannot. Medigap pays for inpatient and outpatient services. Prescription drugs fall under Part D. It is worth repeating here that every Part D plan has a donut hole or coverage gap. There is no coverage you can buy for the donut hole.

Certain people with low-incomes might qualify for a subsidy called Extra Help for Part D. If you qualify, Medicare will waive the gap. Your regular prescription copays will also decrease. The application for the Extra Help for Part D subsidy is available at your local Social Security office or online at their website.

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