The donut hole, or coverage gap has been one of the best assets to the Part D program but also one of the most feared. This gap means Part D plans won’t offer the same benefits after spending a certain amount on prescriptions but before hitting the spending level for catastrophic coverage. On the plus side, the coverage gap starts after spending a few thousand dollars on prescription medication within a year.
What is the Medicare Part D Donut Hole?
The Medicare Part D donut hole works like this:
- According to Medicare.gov, the Medicare Part D donut hole opens once a beneficiary and plan have spent a combined annual total of $4,430 in 2022.
- After the beneficiary spends $7,050 out of their own pocket for the year, the coverage gap ends, and catastrophic coverage starts.
- Under catastrophic coverage, the beneficiary will pay just 5% of their prescription cost.
- The process starts over at the end of the year, so no expenses carry over from year to year.
Note that people who qualify for an Extra Help program won’t experience the donut hole. Extra Help helps people with limited resources and income pay for prescription and prescription plan costs.
Is There Donut Hole Insurance Inside the Coverage Gap?
In the past, Part D plan members who did not qualify for Extra Help had no donut hole insurance at all, but the government has worked to close the coverage gap. Thus, beneficiaries only need to pay 25% of the cost of covered medications from the time they enter the donut hole to when they emerge.
For instance, consider a Medicare beneficiary with a prescription that retails for $200 and a $25 plan copay. Instead of paying the $25 copay during the coverage gap, the beneficiary will need to pay $50 for the prescription.
How to Emerge From the Part D Coverage Gap
Expenses that count towards closing the coverage gap may include:
- The amount the beneficiary paid during the donut hole
- Any discounts applied
Expenses also include amounts paid by charities, family or friends, and state assistance programs. The plan premium, pharmacy dispensing fees, and the cost of drugs not covered by the plan don’t count.
What if the Pharmacy Didn’t Offer a Discount During the Coverage Gap?
Sometimes, people believe they and their insurance company have spent enough to enter the coverage gap, but they don’t get the 75% discount they were promised. Here’s what to do:
- First, check the plan’s EOB, or explanation of benefits, to see how the insurance company documented the charges.
- The plan’s statement should also track spending. I
- f the EOB and statement don’t answer questions, contact the insurance company to determine if it made an error or file an appeal.
What’s the Purpose of the Medicare Part D Donut Hole?
The designers of Medicare Part D devised the coverage gap to help control costs. They reasoned that the relatively modest spending limit would help encourage beneficiaries and providers to reduce medication costs. For example, generic medications generally cost less than brand-name drugs. Also, some drug plans may offer a mail-order plan that costs less than local pharmacies.
Since most people don’t reach the donut hole, the government wanted to keep plan costs as low as possible for the majority. Still, the donut hole put a significant burden on some Medicare beneficiaries, so the government made plans to close the gap.
- Costs in the Coverage Gap, Medicare.