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How does this Donut Hole really work?
The Coverage Gap or Donut Hole has caused a considerable amount of confusion for many people and has even surprised seniors when they suddenly are required to pay the full price of their medications. The following is based on the 2010 Medicare Standard Benefit Plan Model.
:: Quick Overview
:: What about Part D plans that vary from the CMS Model Plan?
:: How do you keep track of the retail costs?
:: What about Medications Purchased Outside the US?
:: How long do I remain in the Coverage Gap?
:: What happens after I leave the Coverage Gap?
:: How about an example so I can estimate when I enter and leave the Donut Hole?
Quick Overview
Here is a quick overview of the Donut Hole or Coverage Gap.
- According to the CMS Model Plan, the Donut Hole phase begins when the covered medication costs reach $2830. (some plans begin earlier than this point at perhaps $1,800)
- Please note, this $2830 is the total retail cost of the covered medications, not what you spend personally. As a Part D beneficiary, you will pay only a portion of the $2830.
- In the CMS model plan, a beneficiary; like yourself, pays the first $310 dollars as a deductible and then 25% of the next $2520, for a total out of pocket medication costs of $940 (excluding monthly plan premiums).
- The Medicare Part D plan pays the difference or $1890.
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What about Part D plans that vary from the CMS Model Plan?
Plans that have tiered Co-Payment instead of the 25% Co-Insurance and no initial $310 deductible offer only a slight variation of this calculation - the Coverage Gap still begins when total retail cost of covered medications reach $2830 (or perhaps lower depending on your plan).
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How do you keep track of the retail costs?
You do not need to keep track of retail costs. Your Part D plan provider will gather together all of the retail costs and watch where you are with respect to the Donut Hole. Your monthly statement should provide you with an overview as you approach the $2830 mark (entry into the donut hole).
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What about Medications Purchased Outside the US?
I use medications not covered by my plan or bought outside of the country (in Canada). Are these expenses included in the $2830 or any other Part D calculation?
Nope - medications not included on your plan's formulary (out of formulary drugs) or purchased outside of the US fall outside of your Part D coverage and are not included in the $2830 or any other Part D calculation.
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How long do I remain in the Coverage Gap?
Medicare Part D beneficiaries remain in the Donut Hole until their true out of pocket costs exceeds $4550. The $4550 does not include the portion of your prescription expenses paid by the insurance carrier or your monthly premiums.
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What happens after I leave the Coverage Gap?
After the Donut Hole, the Medicare Part D beneficiary enters into the last phase of the Medicare Part D program or Catastrophic Coverage. From this point on, the Medicare Part D beneficiary pays $2.5 per month for generics / $6.3 per month for name brand medications or 5% of the medication's retail cost, whichever cost is higher.
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How about an example so I can estimate when I enter and leave the Donut Hole?
Suppose an example beneficiary, Mr. Smith, takes an expensive medication such as Betaseron (with an estimated retail cost of $775 for eight 0.3 MG vials per month), he will never pay more than $4550 out of pocket before the Catastrophic Coverage phase of his plan is reached. Assuming Betaseron is the only medication that Mr. Smith uses, he will enter into the Donut Hole in the third month of his plan ($2830 / $775).
Mr. Smith will then emerge from the Donut Hole into the low cost Catastrophic Coverage around the seventh month of his plan ($6440 / $775). In this way, Mr. Smith will receive low cost Catastrophic Coverage for the remainder of the year (or approximately five+ months).
During the Catastrophic Coverage phase, Mr Smith's monthly medication costs should be reduced to $38.75 or 5% of $775. Please note: if Mr. Smith enrolled in a Medicare Part D plan where his medications are also covered through the Donut Hole, Catastrophic Coverage may never be reached because Mr. Smith's true out of pocket medication costs would never exceed $4550 (with a plan providing Donut Hole coverage, Mr. Smith would probably pay around 25% of the retail price or 193.75 (assuming this medication is listed as a Tier IV or "specialty" drug) -- twelve months of coverage = $2325 out of pocket cost).
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:: See more Donut Hole Examples and more on Donut Hole Coverage
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:: Try out your own Doughnut Hole example with our Doughnut Hole Calculator
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Last updated on: 07/05/2009
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