Although donut holes have been enjoyed by people for centuries, when it comes to donut holes in Medicare, a glazed ball of doughy goodness is not what comes to mind.
You can think of Medicare prescription drug coverage kind of like a donut. On either side of the hole, coverage is pretty good. But once you hit the middle, there’s nothing but empty space to enjoy. The donut hole is officially called the coverage gap. In the gap, there is a temporary limit on what the drug plan will cover for a member’s medication. Most members will never reach the donut hole, but for others that are headed straight there, some strategic planning can help them avoid the added costs associated with reduced drug coverage.
The coverage gap starts when the total drug cost has reached a certain limit for the year, around $3,310 for 2016. The total drug cost is defined as a combination of what the plan has paid in addition to what the member has paid out of pocket. This is an important distinction. Most members only see or care about their out of pocket cost (copay or coinsurance) for the medication. If, for example, a member pays $35/month for an expensive brand name drug, the actual cost of the medication might be in the thousands. Boom, that member hits the donut hole. He or she may not realize that there is an equally effective - and less expensive medication. By checking the member’s formulary and having a discussion with a pharmacist or doctor, a member can find out if such drug exists.
So, what happens if a member falls into the donut hole? In the past, this meant the member would have to pay the full cost of their drugs. This is no longer the case, but it’s still very expensive to be stuck in the hole. Instead of paying a reasonable copay, the plan switches to a discount model, meaning the member pays the entire cost of the drug minus discounts from the manufacturer / government. For brand-name drugs on the member’s formulary, the manufacturer plus the federal government covers 55% of the drug cost. This leaves the member to pay 45% of the remainder. Similarly, for generics, the government pays 42% and the member pays 58%.
Help, I’m stuck in the donut hole.. how do I get out?
The coverage gap ends when the member has paid $4,850 out of pocket for medication since the beginning of the year. Once you get out of the emptiness at the center of the donut, you finally reach the glazed goodness again. Things are even better on the other side of the donut. Although you never want to see this side, once you're there, you sure can enjoy it. This side of the glazed plain is called catastrophic coverage. Here, the member either pays $2.95 for generics and $7.40 for covered brand name drugs OR 5% coinsurance, whichever is greater.
The main point of the donut hole story, is- don’t fall in. Make sure you keep track of the total cost of your medications and find out if there are less expensive or preferred alternatives. Just because a medication is more expensive, doesn’t mean it’s better. Ask your pharmacist if there is a comparable option to your existing prescription and check your formulary to make sure you’re on a preferred drug.
Enjoy the donut, not the hole!