Donut hole and drug plans
The Medicare drug coverage gap, commonly known as the "donut hole," is a temporary limit on what Medicare Part D prescription drug plans will pay for prescription drug costs. The term "donut hole" was coined due to the way the coverage gap is structured. Initially, Medicare Part D covers a certain portion of a beneficiary's prescription drug costs until a specific threshold is reached. Once that threshold is reached, the beneficiary enters the coverage gap or donut hole, where they are responsible for a higher percentage of the cost of their prescription drugs. This gap continues until the beneficiary reaches a certain out-of-pocket spending limit, after which Medicare Part D coverage resumes. The hole in coverage that occurs in the middle of the Medicare Part D coverage structure resembles a donut, hence the name "donut hole." This system was put in place to incentivize Medicare beneficiaries to utilize generic drugs before using name brand drugs.
Prior to the implementation of Part D in 2006, Medicare did not cover the cost of prescription drugs, leaving many seniors struggling to afford their medications. Part D is offered by private insurance companies approved by Medicare and provides coverage for both generic and brand-name prescription drugs. It was designed to help seniors save money on their prescription drug costs and provide greater access to necessary medications. Most Medicare beneficiaries only have a small copay for their drugs each month because of the implementation of Part D.
However, one issue that has plagued Medicare is the "donut hole" or the coverage gap that occurs in Medicare Part D prescription drug plans. This has usually effected beneficiaries The Medicare Part D prescription drug program has several phases of coverage. Understanding these phases is essential for beneficiaries to plan and manage their prescription drug costs effectively. The different phases are:
Deductible Phase: This is the first phase of coverage, and it's optional. In 2021, the deductible for Part D is $445. It goes up a little bit each year. During this phase, the beneficiary is responsible for paying the full cost of their prescription drugs until they reach the deductible amount. Once the deductible is met, the coverage moves to the initial coverage phase. Most drug plans will waive the deductible for some or all covered generic drugs so that you only have a small copay for those prescriptions.
Initial Coverage Phase: After the beneficiary meets their deductible, the initial coverage phase begins. During this phase, the beneficiary pays a copayment or coinsurance for each medication, and the Part D plan covers the rest. In 2021, the beneficiary pays 25% of the drug costs, and the Part D plan covers the remaining 75% until the total cost of medications reaches $4,130. Once the total cost of medications reaches this amount, the coverage gap or donut hole phase begins.
Coverage Gap or Donut Hole Phase: This phase occurs after the total cost of medications reaches $4,130. During this phase, the beneficiary is responsible for paying a percentage of the drug costs out-of-pocket until they reach the out-of-pocket threshold, which is $6,550 in 2021. The percentage that the beneficiary pays depends on the type of medication, and it's typically 25% of the cost for brand-name drugs and 75% for generic drugs. In the past, this coverage gap could be financially challenging for beneficiaries, but since the implementation of the Affordable Care Act, the gap has been gradually closing.
Catastrophic Coverage Phase: Once the beneficiary has reached the out-of-pocket threshold of $6,550 in 2021, they move into the catastrophic coverage phase. During this phase, the beneficiary only pays a small copayment or coinsurance for their medications. In 2021, the copayment or coinsurance is either 5% of the drug cost or $3.70 for generics and $9.20 for brand-name drugs, whichever is greater. This phase provides significant financial relief for beneficiaries who require expensive medications.
In 2010, the Affordable Care Act (ACA) addressed the Medicare donut hole by gradually phasing it out. The ACA gradually closed the gap by increasing the amount of prescription drug costs covered by Medicare each year, reducing the out-of-pocket expenses for beneficiaries during the coverage gap period.
Some insulins are excluded from the different phases of coverage. Each Part D plan is required to cover one type of insulin in each category for a fixed copay. This means that you'll only pay a fixed copay no matter what coverage phase you are in. This has saved some Medicare beneficiaries hundreds of dollars per year on their prescriptions. As a result, more seniors can afford their prescription drugs, leading to better health outcomes and a better quality of life.
If you have questions about the donut hole, how you can avoid it, and if you can get your prescriptions for less, contact a local agent today. At Utah Avenue Insurance, we love to research the different options you have for your health care.
