The Medicare “Donut Hole” Explained

By February 23, 2023 Medicare

The Medicare coverage gap, commonly known as the “donut hole,” can be confusing and frustrating. It’s important to understand that the coverage gap is a gap in coverage for your prescription drugs. This means that there is a period of time in which you are responsible for the full cost of your prescriptions until you reach the out-of-pocket limit. While potential costs associated with the donut hole went down substantially in 2020, there’s still a coverage gap that may affect what you pay for prescription drugs. Here’s what you need to know about the Medicare Part D donut hole.

There are four phases of Medicare Part D coverage that correspond to how much you’ve spent out-of-pocket on covered prescription drugs for the year. The donut hole is the third of those four phases, and it’s the one that’s likely to be the most expensive for you

Phase 1: Coverage Gap Deductible

Understanding the deductible for your Part D plan can be tricky but it’s important to know what you will be paying for your prescription drugs. Your plan’s deductible is the amount of money you have to spend on prescription drugs before your plan starts to cover them. It is important to note: That the deductible amount varies from plan to plan but cannot be more than $505 in 2023 and the deductible is waived for generics.

Phase 2: Initial Coverage Phase

Once you reach your deductible, you will enter the initial coverage phase of your health insurance plan. During this phase, your plan will begin to cover your prescription drugs, either through copayment (a flat dollar amount) or coinsurance (a percentage of the price), depending on the drug’s formulary tier. Coverage ends once you and your plan have spent a combined total of $4,660 in 2023, including your deductible.

Phase 3: Donut Hole Coverage Gap

After you’ve reached the initial coverage phase, then you enter the dreaded “donut hole.” When you get to this point, you are responsible for 25% of the cost of your medications. In the coverage gap, or donut hole, you stop paying the coinsurance or copays you paid before. Instead, you’re responsible for up to 25% of the price for all of your medications.

Phase 4: Catastrophic Coverage

You enter catastrophic coverage when your out-of-pocket costs for covered drugs hit $7,400. Figuring out when you’ll hit that threshold can be a little complicated, though — what counts as “out-of-pocket spending” most likely isn’t equal to what you actually spend. Your Medicare Part D statements should show you what phase you’re in, a running total of your drug costs.

When it comes to out-of-pocket costs, the following items do count toward your total: your annual deductible, coinsurance and copayments; 95% of the cost of covered drugs you get during the coverage gap (except for the dispensing fees); and 25% of the cost of pharmacy dispensing fees for covered drugs you get in the coverage gap.

On the other hand, the following items do not count toward your total: Part D drug plan monthly premiums; the portion of the costs and pharmacy dispensing fees that your Part D insurance company pays for when you’re in the coverage gap; and anything you pay for drugs that aren’t covered by your plan, including the cost of covered drugs from pharmacies that aren’t in your plan’s network.

Frequently asked questions about the Donut Hole:

Will I enter the donut hole in 2023?

Not everyone will enter the coverage gap. Medicare drug plan coverage does change slightly from year to year, so it’s important to stay up to date on the new changes. The donut hole is the third stage of a Part D coverage plan, and you will enter it if your total drug cost for the month exceeds $505 or you have reached a total of $4,660.

What happens when I do enter the donut hole?

If you enter the donut hole this means you have reached the total drug cost of $4,660 or more before the end of the year. Once in the donut hole there’s a limit on what your Medicare Part D plan can cover for your formulary medications during this coverage phase. However, you will receive a 75% discount for covered formulary brand and generic drugs. You will remain in the donut hole until your total out-of-pocket drug spending reaches $7,400.

How do I keep track of my total drug costs and out-of-pocket spend?

Each month, when you fill a prescription, your Medicare Part D plan will provide you with an explanation of benefits (EOB) drug summary at the end of the following month. This summary will give you an overview of your spending and will help you understand if you are approaching the donut hole ($4,660 mark).

What happens when I reach $7,400 total out-of-pocket costs?

After you reach $7,400 in out-of-pocket costs for covered drugs you enter catastrophic coverage This phase is the final stage of the benefit and you will remain here until the end of the calendar year. During this phase you will pay the greater of 5% co-insurance or a $4.15 co-pay for generic drugs and $10.35 co-pay for brand name drug

I am text block. Click edit button to change this text. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

Can I Purchase a Medicare Part D plan that covers the donut hole coverage gap?

The answer to that question is no. Medicare Part D plans do not exist without the donut hole, so you have to just do your best to avoid this threshold. The best way to avoid the donut hole is to take generic medications whenever possible and to discuss cheaper alternatives with your Doctor. Some medications may not have a generic equivalent on the market, but there may be other similar medications that are cheaper that achieve the same results.

 

We hope this information has been helpful. Our team of experienced agents is here to help with any questions you may have about the Medicare Donut hole or other Medicare topics. We take pride in providing our clients with the information they need to make the best decisions for their health care. Please don’t hesitate to reach out to us for more information and assistance. We look forward to hearing from you!

CONTACT US TODAY