You may or may not have heard the term “Medicare Donut Hole,” but it is something that is important in understanding how Prescription Drug coverage works.

We are going to give you an easy to understand definition and some examples so you are better prepared when you enter the Medicare donut hole.

Donut Hole Definition

The Medicare Donut refers to the donut hole, or coverage gap, in Medicare Part D prescription benefits. This is one of the most controversial parts of the plan and of concern to many people who have joined a Part D drug plan.

Although all prescription drug plans must explain the coverage gap in their literature and advertising, it’s often a surprise to enrollees who didn’t read the fine print and find themselves going from making copayments to paying 100% of the cost. Yikes!

How the Donut Hole Works

The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs. In 2019, once you and your plan have spent $3,820 on covered drugs, you're in the coverage gap, or donut hole. Now here is where it gets tricky.

This amount is the total retail cost of the covered medications, not what you spend personally at the pharmacy. The total retail cost of prescription medications is calculated from your Medicare Part D plan's negotiated retail drug price - and every Medicare Part D plan can have a different negotiated retail drug price. So it is possible that some may reach this amount before others with identical prescriptions.

Previously, enrollees had to bear the full cost of prescription drugs. In 2019, this changed to enrollees paying 25% on covered brand-name prescription medications and 37% of generic medications. These are your out-of-pocket expenditures.

Some of the cost of the drugs do not count as part of your out-of-pocket expenses. These include:

  • What the drug plan pays toward the drug cost (5% of the price in 2019)
  • What the drug plan pays toward the dispensing fee (75% of the fee in 2019)

How Do I Get Out of the Donut Hole?

Once enrollees max out the $5,100 out-of-pocket requirement, the coverage gap ends and the drug plan pays most of the costs for the remainder of the year. From this point on, the Medicare Part D enrollees return to paying 25% of name brand drugs and 37% of generic drugs.

Coverage Gap Examples

All of that information can be confusing. Here are some examples of two people needing different types of medications.

Here is an example of someone who needs brand name medications.

In 2019, Mrs. Anderson reaches the coverage gap in her Medicare drug plan. She goes to her pharmacy to fill a prescription for a covered brand-name drug. The price for the drug is $60, and there's a $2 dispensing fee that gets added to the cost. Mrs. Anderson pays 25% of the plan's cost for the drug and dispensing fee ($62 x .25 = $15.50).

The amount Mrs. Anderson pays ($15.50) plus the manufacturer discount payment ($42.00) count as out-of-pocket spending. So, $57.50 counts as out-of-pocket spending and helps Mrs. Anderson get out of the coverage gap. The remaining $4.50, which is 5% of the drug cost and 75% of the dispensing fee paid by the drug plan, doesn't count toward Mrs. Anderson's out-of-pocket spending.

Here is an example of someone who needs generic medications.

In 2019, Mr. Evans reaches the coverage gap in his Medicare drug plan. He goes to his pharmacy to fill a prescription for a covered generic drug. The price for the drug is $20, and there's a $2 dispensing fee that gets added to the cost. Mr. Evans will pay 37% of the plan’s cost for the drug and dispensing fee ($22 x .37 = $8.14). The $8.14 he pays will be counted as out-of-pocket spending to help him get out of the coverage gap.

The Coverage Gap and You

The donut hole is a major problem in the Medicare plan because many enrollees can’t afford to get through it. The U.S. Department of Health and Human Services estimates that more than a quarter of participants simply stop filling their prescribed drugs when they hit the donut hole.

There are enhanced plans that provide additional benefits to help with donut hole coverage, but everything comes at an additional cost.

For more information about how the donut hole could affect you, talk to a Medicare agent at Braden insurance today.