As the popular Oscar Wilde adage goes, “The optimist sees the donut, the pessimist sees the hole” (1). When it comes to Medicare and your drug plan, there’s nothing good about the donut hole so, maybe, just this time, you’re entitled to your pessimism.
The hole references a gap in drug coverage. There are several layers to the donut. Let’s use the year 2017 to illustrate how this works:
First, you have to reach your deductible. In 2017, the deductible is $400 so, before your drug plan starts covering any of your medication costs, you have to spend $400 paying for your medications yourself. (Not all plans have deductibles though, it’s just that the deductible can’t be greater than $400).
Second, you’ve reached your $400 deductible - now what? Well, if the metaphorical donut were a flotation device, you would be floating safely along the water. Once you hit your deductible (if you have one), your drug plan steps in and you’ll pay your designated co-pays (each plan has different co-pays for different drugs. Drugs are tiered with generics being typically tier 1-2 and brand name drugs being tiers 3-5)… until you reach $3,700. Yup, that means after you’ve spent $400, your drug plan will cover an average of 3/4ths of your drug costs until the combined total (what you’ve paid and what your drug plan covers) reaches the new threshold of $3,700.
Third, you and your drug plan have now spent the $3,700. Now what? This is where you fall into the donut hole or, in the case of the floatation device, this is the part where you get wet. At this point, your drug plan pulls back its coverage and leaves you, well, hanging out to dry. This is how it works in the donut hole:
- If you’re getting generic medications → you pay 51%, your drug plan pays 49%
- If you’re getting brand-name medications → you pay 40%, your drug plan pays 10%, the drug manufacturer pays 50%
Once you have spent a total of $4,950 of your own money, you’re back on the other side of the donut, safe and dry. At this point, Medicare steps back in to cover 80% of your drug costs, your drug plan covers 15%, and you cover the remaining 5%. Phew!
I don’t mean to sound like an infomercial but there’s more - just a little more information to help you get through the donut hole. There are a few costs that you may be paying that won’t get you to the other side of the donut any faster. Here are the main payments you may be making that don’t get you past the hole:
- The co-pays your pharmacy charges to dispense your medications
- The premium you pay to have your drug plan
- The cost of any medications that aren’t covered by your drug plan
Does it ever end?
Believe it or not, the donut hole is in the process of closing. Slowly, but it is closing and, thanks to the Affordable Care Act, the donut hole will cease to exist in 2020. As of 2020, you will pay 25% of the costs for both generic and brand name drugs.