Donut Hole

Donut Hole

Mon, 11/01/2021 - 13:11
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Donut Hole refers to a prescription coverage gap found in Medicare (Part D) drug plans.

Prescription Donut Hole

Medicare plans with prescription drug coverage (Part D) have a coverage gap called a "Donut Hole." This holds true for Medicare Advantage plans also.

♦ This means that after you and your drug plan have spent a certain amount of money for covered drugs (Initial period), you have to pay all costs out-of-pocket for your prescriptions up to the Donut Hole limit.

Once you have spent up to the yearly limit, your coverage gap ends and Catastrophic coverage kicks in to help pay for covered drugs until the end of year.

♦ For 2022 the Donut Hole starts at $4,430 and ends at $7,050. A $2,620 wide hole.

• For 2021 the Donut Hole started at $4,130 and ends at $6,550. A $2,420 wide hole.

• For 2020 the Donut Hole started at $4,020 and ended at $6,350. A $2,330 wide hole.

• For 2019 the Donut Hole started at $3,820 and ended at $5,100. A $1,280 wide hole.

• For 2018 the Donut Hole started at $3,750 and ended at $5,000. A $1,250 wide hole.

♦ In 2022, the hole widens another $200 but shifts $200, so you might fall into the hole a little later. But you will have to pay more to get out of the hole.

• In 2021, the hole widened $90 but shifted $110. The trend is not good.

The news is all abuzz about the closing of the Donut Hole. This is a little misleading because the hole is still there. It is also getting wider every year.

♦ The Donut Hole will never be eliminated from your Medicare Part D prescription drug plan coverage.

Many people use the word "eliminated," but what is actually happening is the gap between what counts toward getting out of the Donut Hole is shrinking.

Since 2020, both brand-name and generic drugs cost a fixed 25% of retail while you are in the Donut Hole.

Compared to 2019 where brand-name drugs cost a fixed 25% of retail and generics cost 37%.

% Paid while in Donut Hole
Year Brand Generic
2018 35% 44%
2019 25% 37%
2020 25% 25%
2021 25% 25%
2022 25% 25%

Both classes of drugs will count in helping to get out of the Donut Hole and into the next stage of drug coverage called Catastrophic Coverage.

After your costs reach the Donut Hole level you will pay no more than 25% for most brand-name drugs and biological drugs purchased during the time you are in the coverage gap. This savings comes from additional manufacturer discounts (70%) and the federal government paying more.

♦ In 2022, you stay in this gap (Donut Hole) until total costs reach $7,050.

It is a bit confusing but 95% of the cost for brand drugs counts toward getting out of the gap - what you pay (25%) plus the manufacture discount (70%) is added toward your total as if it were an expenditure and this helps you to get out of the coverage gap faster.

♦ Generics are treated differently. In 2022, during the coverage gap you will pay 25% of the price for generic drugs.

For generic drugs, only the amount you pay (25%) will count toward getting you out of the coverage gap.

♦ Deductibles count but drug plan premiums do not count. 75% of any plan's pharmacy dispensing fees paid by the plan also do not count.

♦ It has been estimated that between 2010 and 2015, Medicare beneficiaries have saved close to $21 billion on prescription drugs because of the gradual closing of the coverage gap.

♦ End result - people using generic drugs will save some money while in the Donut Hole. However, with the Donut Hole widening someone using a lot of prescriptions is likely to pay considerably more than in 2021.

→ Some Medicare drug plans already include coverage in the gap. People with these plans may end up paying less.

• It is best to review your coverage during open enrollment, October 15th to December 7th.

Catastrophic coverage

Medicare spending on prescription drugs has grown from $44 billion in 2006 to $102 billion in 2019. Most of that growth has been in the catastrophic phase of coverage, largely driven by prices of specialty drugs.

In 2022, once this level is reached beneficiaries will be charged $3.95 for those generic or preferred multisource drugs with a retail price under $79 and 5% for those with a retail price greater than $79.

For brand-name drugs, beneficiaries would pay $9.85 for those drugs with a retail price under $197 and 5% for those with a retail price over $197.

This is up slightly from 2021 charges of $3.70 for generics and $9.20 for brands.

In 2019, nearly 1.5 million Medicare Part D enrollees had out-of-pocket spending above the catastrophic threshold.

♦ As new, high-priced drugs come to market and are covered under Medicare Part D, the current requirement to pay a coinsurance of 5% in the catastrophic phase can lead to thousands of dollars in out-of-pocket costs.

Out-of-pocket cap

Adding an out-of-pocket cap to Part D has been proposed by policymakers on both sides of the aisle.

Senate GOP proposed a $3,100 limit and House Democrats are pushing a $2,000 limit. Both plans would require manufacturers to kick in a greater percentage. Currently in the catastrophic phase manufacturers kick in 0%.

Under the Senate plan they would be asked for 14% and under the House plan it would be 30%.

Both proposals push the plan sponsors (insurance companies) to cover a much higher percentage. The reasoning is that insurance companies would likely negotiate more aggressively with manufacturers for better prices.

Beneficiaries would benefit greatly but the federal government would also cut its expenditures in the catastrophic phase from the current 80% level down to 20%.

Insurance companies are not happy and big bad pharma is crying up a storm.

No cap for Part B drugs

Capping Part D drugs would not cap drug spending on Part B drugs. These are expensive drugs administered in physician's office, usually by injection. These drugs are subject to 20% coinsurance with no cap.

Some Medicare beneficiaries have retiree benefits or Medigap coverage to help pay their 20% share.

Around 6 million Medicare beneficiaries lack supplemental coverage.

Another 26 million are enrolled in Medicare Advantage plans where they typically face a 20% coinsurance up to their plan's out-of-pocket maximum, which is limited to $7,550 in 2021. Many Advantage plans are now pushing this limit for 2022.

♦ Part B drug costs can easily become excessive. For example, the Alzheimer drug (Aducanumab) is priced at $56,000 a year. This means a 20% cost-sharing responsibility would be more than $11,000 a year.

Advocates argue that it is Part B drugs that need immediate relief.

In October 2019, President Trump kicked the hornet's nest by proposing tying some Medicare Part B drug prices to lower prices in other countries. He was immediately attacked by conservative groups and Big Pharma. This never went anywhere.

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