When it comes to the Donut Hole, many say it is not as sweet as it sounds. Although the Donut Hole is supposed to act as a cost-containment barrier, your copays could drastically change if you meet this stage in your drug plan’s coverage. To understand the Donut Hole, it is important to know how your drug expenses will change.
For starters, most Medicare Prescription Drug plans and Medicare Advantage plans that offer drug coverage have four different coverage phases: the Deductible, Initial Coverage Limit, Coverage Gap (Donut Hole), and Catastrophic Coverage. When and how you meet these phases will depend on your drug expenses.
Now, if your plan has a Deductible, you will have to pay the retail cost of your drugs out of pocket until you meet this amount. Some plans may not require the Deductible to be met for certain tiered drugs. Once you have met the Deductible, you move into the Initial Coverage phase, where the plan will share the cost of your drugs with you.
During the Initial Coverage phase, you will have a fixed copay or coinsurance on your covered drugs. You will pay these set amounts each time you fill your prescriptions until you and the plan have paid a total of $4,130 for covered prescriptions. This is when the Coverage Gap, aka the Donut Hole, begins. It is important to note that most people will not reach the Coverage Gap.
Once you are in the Coverage Gap, your copays change to a straight 25% coinsurance on the retail cost of all covered drugs. This phase was meant to help contain drug costs for consumers, but many end up paying a lot more for prescriptions once they meet the Donut Hole. It is imperative to know the costs of your drugs that will drive you to this phase. You are only paying a portion of the cost with insurance, but the amount that you pay on your end in addition to what the plan pays is what will determine when you hit the Coverage Gap.
For example, during the Initial Coverage phase someone may pay $47 for a Tier 3 medication. But once they reach the Coverage Gap, they are paying 25% of the retail cost of that drug. If the retail cost is $500, then that person will wind up paying $125 for the same drug in the Donut Hole. If your medications are quite costly, chances are you will meet the Donut Hole.
Fortunately, there is an end to the Donut Hole. Once you have spent $6,550 out of pocket for the year, you are out of the Coverage Gap and go automatically into Catastrophic Coverage. While in Catastrophic Coverage you will pay the greater of either 5% of the cost of your drugs, or $3.70 for generics, and $9.20 for all other drugs. Many find that prescriptions are a lot more affordable during this phase.
Since all Medicare Drug plans have a Donut Hole, it can be unavoidable depending on the medications you take. When you reach the Donut Hole each year will depend on how much you and the plan pay for covered drugs. To help control your drug costs, you may want to investigate pharmaceutical assistance through your state Medicaid office, the Extra Help program offered by Social Security, or Manufacturers Discounts.
Call 1-800-334-9330 and one of AMAC’s trusted, licensed Advisors will be happy to assist you with your needs.