The Coverage Gap or Donut Hole (or Doughnut Hole) has caused a considerable amount of confusion for many people and has even surprised seniors when they suddenly are required to pay ta higher price (or before 2011, the full price) of their prescription medications. The following brief over view is based on the 2015 Medicare Standard Benefit Plan Model. For more information, please click here to see the Donut Hole section of our Frequently Asked Questions (or FAQs).
Here is a quick overview of the Donut Hole or Coverage Gap.
According to Medicare (or the Centers for Medicare and Medicaid Services, CMS), Standard or Model Medicare Part D prescription plan, the Donut Hole phase of your Medicare Part D coverage begins when your total retail drug costs reach $2960. (In past coverage years, some Medicare Part D plans have implemented a different Initial Coverage Limit and have begun the Donut Hole phase a little earlier - perhaps at a total retail drug spending of $1,800.)
Please note, this $2960 is the total retail cost of the covered medications, not what you spend personally at the pharmacy. As a Medicare Part D beneficiary, you will pay only a portion of the $2960 and your Part D plan pays a portion. Your 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 you may reach the Donut Hole a little earlier or later than someone else who uses the exact same prescription medications, but this other person has enrolled in a prescription drug plan from another Medicare Part D plan provider.
As a note, in the CMS model Medicare Part D plan, a beneficiary; like yourself, pays the first $320 dollars as an initial deductible and then is responsible for paying 25% of the next $2640, for a total out of pocket medication costs (or true out-of-pocket costs -— TrOOP) of $980 (excluding your monthly plan premiums).
Again, following the CMS standard model Medicare Part D plan, when you reach the Donut Hole, your Medicare Part D plan will have paid the difference between the negotiated retail cost of all your drug purchases and your out of pocket cost or $1980.
However, most people simply say that you enter the Donut Hole phase of your Medicare Part D plan at the end of your Initial Coverage phase or when your reach your Medicare Part D plan's Initial Coverage Limit (again, around $2960).
The 2011 Donut Hole marked the beginning of an effort at closing the Donut Hole. In 2011, anyone reaching the Donut Hole received a 50% discount on brand-name formulary drugs and a 7% discount on all generic formulary medications.
In 2015, anyone reaching the Donut Hole will receive a 55% discount on brand-name formulary drugs and a 35% discount on all generic formulary medications. So for your brand-name drug purchases, you will pay only 45% of the retail cost, but receive 95% credit toward meeting your Donut Hole exit point or TrOOP. For generic drug purchases, you pay 65% of the retail cost and receive the same 65% credit toward TrOOP. Click here if you would like to read more about the Donut Hole drug discount program.
You will stay in the Donut Hole until your TrOOP (True Out-of-Pocket) costs reach $4700.
What about Medicare Part D prescription drug plans that vary from the CMS Standard Model Plan?
Medicare Part D Prescription Drug Plans that have tiered Co-Payment instead of the 25% Co-Insurance and no initial $320 deductible offer only a slight variation of this calculation - however, the Coverage Gap or Donut Hole still begins when total retail costs of covered medications reach $2960 (or perhaps lower depending on your Medicare Part D prescription drug plan's Initial Coverage Limit).
You do not need to keep track of your retail drug costs or retail drug spending. Your Medicare Part D plan provider will gather together all of the retail costs and watch where you are with respect to the Donut Hole phase of your prescription drug plan. Each month you will receive a Explanation of Benefits (EOB) statement from your Medicare Part D plan and this monthly statement should provide you with an overview of your spending as you approach the $2960 mark (the place where you enter into the Donut Hole or Coverage Gap). If you have trouble understanding the Explanation of Benefits letter that you receive, please be sure to telephone the Member Services department of your Medicare Part D plan for assistance. The toll-free number to your Medicare Part D plan is on the back of your Member ID card.
I use medications not covered by my Medicare Part D plan or sometimes I buy my medications from outside of the country (for instance, in Canada or Mexico). Are these prescription drug expenses included in the $2960 or any other Part D calculation?
No. Any medications not included on your Medicare Part D plan's formulary or drug list (also known as: out of formulary drugs) or drugs that you purchased outside of the United States fall outside of your Medicare Part D coverage and are not included in the $2960 or any other Part D calculation. If you use a medication that is not included on your formulary, you can ask your Medicare Part D plan for a formulary exception or coverage determination, whereby your non-formulary drug would be included on your own personal formulary. If your Medicare Part D plan denies your request for a coverage determination, you can appeal the denial - several times. Be sure to ask your Medicare Part D plan for details on the formulary exception and appeals process.
How long do I remain in the Coverage Gap or Donut Hole?
Medicare Part D beneficiaries remain in the Donut Hole until their true out of pocket (or TrOOP) costs exceed $4700. The $4700 does not include the portion of your prescription expenses paid by the insurance carrier or your monthly Medicare Part D plan premiums - TrOOP only includes the amount you actually spent yourself. Since 2011, TrOOP also includes the 50% portion of the donut hole discount on brand-name drug purchases. This is because the 50% discount was paid on your behalf by the drug manufacturer, not your Medicare Part D plan (which would be considered plan coverage)
What happens after I leave the Coverage Gap or Donut Hole?
After leaving the Donut Hole phase of a prescription drug plan, 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 $2.65 per month for generics / $6.6 per month for name brand medications or 5% of the medication's retail cost, whichever cost is higher.
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