Donut Hole

Donut Hole

Sun, 07/18/2021 - 13:11

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 2021 the Donut Hole starts 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 2020, the hole widened by $1,050 while the start of the hole only shifted $200.

→ In 2021, the hole widens another $90 but shifts $110, so you might fall into the hole a little later.

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.

In 2021 and 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%

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 2021, you stay in this gap (Donut Hole) until total costs reach $6,550.

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 2021, 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.

♦ 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 2019.

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

Catastrophic Coverage

In 2021, once this level is reached beneficiaries will be charged $3.70 for those generic or preferred multisource drugs with a retail price under $74 and 5% for those with a retail price greater than $74.

For brand-name drugs, beneficiaries would pay $9.20 for those drugs with a retail price under $184 and 5% for those with a retail price over $184.

This is up slightly from 2020 charges of $3.60 for generics and $8.95 for brands.

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