What Does the Medicare Part D “Donut Hole” Mean?

While the term “donut hole” might sound sweet, this gap in Medicare prescription drug coverage is definitely not! Each year, your plan may temporarily reach its limit on the amount it will cover for your prescription drugs. When this happens, you may find that you have to pay more for your medications.

How does the donut hole work and how much will end up paying out of pocket? Here’s a closer look at the details.

Medicare Part D Donut Hole: The Basics

Medicare Part D was originally designed to pay for the majority of a covered person’s drug costs. However, depending on your health conditions, you may end up having medication costs that well exceed average spending.

The purpose of the “donut hole” is to encourage covered participants to seek generic drugs or lower-cost drug alternatives. This helps keep the overall costs of the Medicare Part D program down.

Before the Affordable Care Act passed in 2010, when you hit the donut hole, you were responsible for paying 100% of your prescription drug costs while you were in the gap. However, since then, the cost-sharing has been slowly decreasing each year. In 2021, beneficiaries will pay a maximum of 25% of their prescription costs while in the coverage gap.

Medicare Part D Stages

Medicare Part D coverage is divided into four stages, which completely reset each year on January 1st. Here’s a closer look at each stage.

1. Deductible

If your plan has a deductible, you’ll have to pay the full cost of your prescriptions until you’ve met this spending threshold. If you don’t have a deductible, you’ll skip forward to step two.

2. Copay or Coinsurance

After you meet your deductible, you’ll only pay the co-payment or coinsurance amount for the prescription drugs you’re taking. This amount may vary depending on your plan and your medications.

3. Donut Hole

Once you and your plan have spent a certain amount ($4,130 in 2021), you’ll move into the donut hole. At this point, you’re responsible for a certain amount of the drug’s cost until you’ve spent enough to reach the next phase. In 2021, you’ll have to pay no more than 25% of the drug’s cost and you’ll exit the donut hole when your total out-of-pocket costs reach $6,550.

To calculate your total out-of-pocket costs, add what you spent while you were in the donut hole (including the discounted amounts you didn’t pay) to your yearly deductible, co-payments, and coinsurance from the entire plan year.

4. Catastrophic Coverage

When you reach your out-of-pocket limit, you’ll exit the gap and start receiving “catastrophic coverage.” At this point, you’ll pay only a low co-payment or coinsurance amount for your prescriptions.

Medicare Part D plans typically pay about 95% of your drug costs once you’ve hit catastrophic coverage. This will continue until the end of the plan year, then, on January 1st, everything will reset.

Need Medicare Help? Contact The Insurance Hub  

Medicare coverage can seem confusing – but it doesn’t have to be! The experts at The Insurance Hub understand all aspects of Medicare coverage and can help match you with the perfect plan.

Don’t go it alone! Give us a call at 941-706-1111 to speak to one of our licensed agents today.

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