The Medicare donut hole is a colloquial term that describes a gap in coverage for prescription drugs in Medicare Part D. For 2020, Medicare are making some changes that help to close the donut hole more than ever before.
Medicare Part D is the portion of Medicare that helps a person pay for prescription drugs. A person enrolled in Medicare does not have to choose Medicare Part D. However, they must have some other prescription drug coverage, usually through private- or employer-based insurance.
In this article, we define the donut hole and how it applies to Medicare prescription drug costs.
Medicare Part D plans can vary based on a person’s choice of plan. Each plan lists the medications that it covers, as well as other medicines for which it may cover a percentage of costs.
The term donut hole refers to the way a person needs to pay for coverage.
A person pays a specified amount for their prescription drugs, and once they meet this deductible, their plan takes over the funding.
However, when the plan has paid up to a specified limit, the person has reached the donut hole.
Once they reach this point, a person has to start paying for their medications again until they reach another specified amount. After this, their plan takes over payment once again.
The issue with the donut hole is that many people in the United States stop taking their medications upon reaching the donut hole because they cannot afford to pay the high costs for the drugs. They often have to pay thousands of dollars for prescription drugs until they cross this coverage gap.
However, once a person crosses the donut hole, they reach “catastrophic coverage.” Once they reach this stage, they only need to pay about 5% of the cost of the prescription drugs. However, for many people in the U.S., getting to the stage of catastrophic coverage is problematic or impossible.
Lawmakers have passed legislation that has slowly helped to close the donut hole, such as the Affordable Care Act. However, people still experience changes in their coverage as they spend on their prescription drugs. Coverage ends once a person reaches their financial limit on drug spending and starts again during catastrophic coverage.
The changes that Medicare are making aim to reduce the costs that people incur while they are in the donut hole.
In 2011, the government took several actions that started to close the donut hole. These included:
- 2011: The Affordable Care Act required pharmaceutical manufacturers to introduce discounts of up to 50% for brand name drugs and up to 14% for generic drugs, making it easier for people to buy medications once in the donut hole.
- 2012‑2018: The discounts continued to increase.
- 2018: The Bipartisan Budget Act sped up changes to prescription drug discounts when a person was in the donut hole. Examples included manufacturer discounts and decreasing a person’s costs on brand name drugs once they enter the donut gap.
The aim of these changes was to make drugs more affordable once a person reached the donut hole, which would encourage people to continue taking their medications and reduce the risk of a break in treatment.
As of 2020, prescription drug coverage takes the following shape:
- A person pays their co-payment for their prescription drugs, depending upon their drug plan. Their plan funds the remaining portion.
- When a person and their insurance company have jointly paid out a total of $4,020, the individual reaches the next stage — the donut hole.
- In the donut hole, a person pays for 25% of their medication costs out-of-pocket and receives discounts from drug manufacturers to cover the remaining costs.
- The insurance company will add up what a person has paid out-of-pocket for medications in the donut hole. Once this total reaches $6,350, a person has crossed the donut hole.
- A person is now in the catastrophic coverage stage of their medication coverage. Their insurance company now requires that they pay either 5% of a drug’s cost or a minimum copay, whichever is higher.
Ideally, these changes will allow a person to have long-term access to the medications their doctor prescribes.
Here is an example of process of how a Medicare user crosses the donut hole and reaches catastrophic coverage in 2020.
- An individual and their insurance company have spent $4,020 on medications since the start of their plan. That person is now in the donut hole.
- The person pays 25% of their medication costs. For example, if they have a medicine that costs $100, they will pay $25. The pharmaceutical company then discounts the medication by $70, and the insurance company pays the remaining $5.
- The person continues paying 25% out of their own money until they have spent $6,350. When this occurs, they are out of the donut hole.
- A person is now in the catastrophic coverage portion of their coverage. They will pay either a minimum copay or 5% of the drug’s cost.
According to the most recent statistics from the Kaiser Family Foundation, an estimated 4.9 million Medicare Part D enrollees reached the catastrophic coverage portion of Medicare Part D in 2017.
In 2020, person can get out of the Medicare donut hole by meeting their $6,350 out-of-pocket expense requirement.
However, there are ways to receive assistance for funding prescription drugs, especially if a person meets certain low income requirements. These include:
- Extra Help: Extra Help is a Medicare program that helps people pay for medications and other aspects of medical care. A person can qualify for Extra Help if their income is $18,735 or less when single or $25,365 or less as a couple. They must also have less than $14,390 as a single person or $28,720 as a married couple in resources. Resources include savings, stocks, or bonds.
- Medicaid: Medicaid is a federal program that helps low income individuals pay for healthcare. People who qualify for Medicaid are automatically enrolled in the program.
- State Health Insurance Assistance Program (SHIP): These state-specific programs can provide additional assistance for people in funding healthcare costs, including medications.
Many pharmaceutical manufacturers also offer prescription assistance programs that can reduce costs. A doctor or pharmacist can often make suggestions for contacting the drug company.
Around 42.5 million people in the U.S. receive prescription drug coverage through Medicare Part D, according to an article in The New England Journal of Medicineem>.
Closing the donut hole can help a person reduce prescription drug costs. However, they will still be responsible for 25% of costs, once they reach the donut hole.
If an individual has difficulty paying for medications, state, federal, and private organizations can assist.