The Medicare Part D Coverage Gap
Medicare prescription drug plans generally cover your medications until you and your plan have spent up to a certain limit during one year. Once the total of your costs and Medicare's spending has reached that limit, Medicare pays less for your prescription drugs. This coverage change is called a "coverage gap" (also called the "donut hole"). The initial coverage limit and the percentage of drug costs you pay in the coverage gap change from year to year (generally, the costs will go down each year until 2020). A combination of government subsidies and manufacturer discounts will gradually reduce out-of-pocket costs for covered drugs to close the gap.
When you and your Medicare drug plan together have paid a total of $2,850 (the initial coverage limit in 2014), the coverage gap starts. In 2014, covered generic drugs receive a 28% government subsidy, so members pay 72% of the costs of generic drugs during the coverage gap. For covered brand-name drugs, the Medicare Coverage Gap Discount Program provides a 52.5% discount from manufacturers that have agreed to participate. By 2020, you'll pay 25% of the costs of medications (both generic and brand-name) after you reach the initial coverage limit.
If your out-of-pocket expenses for drugs in your plan's formulary reach $4,550, you'll enter the "catastrophic" phase of Medicare prescription drug coverage. If you reach this phase, you'll only have to pay a small copayment or coinsurance for covered medications for the rest of the year. The money you spend on drugs that are not covered on your plan's formulary does not count towards the catastrophic coverage threshold.
Medicare prescription drug coverage resets each year. On January 1st of each year, you begin with your plan's initial drug coverage and its associated deductible requirements (if there is a deductible). If you were in the coverage gap in December of the year before, you would return to the plan's initial coverage on January 1, where you pay a copayment for drugs after the plan's deductible is satisfied (assuming the plan has a deductible).
How to avoid the coverage gap
Some Medicare prescription drug plans offer coverage to further reduce out-of-pocket costs in the coverage gap. This coverage is in addition to the government subsidies for generic drugs and manufacturer discounts for brand-name drugs described above.
Health-care reform and the coverage gap
The coverage gap will be phased out over time (Medicare started phasing it out in 2011). However, when the coverage gap ends in 2020, drugs won't be free of charge. The two tables below show the projected changes in costs for brand-name and generic drugs from 2011 through 2020.
Brand-name drug costs in the coverage gap
|Calendar Year||Discount from Drug Manufacturer||Government Subsidy||Consumer's % Payment of Brand-Name Drug Cost|
Generic drug costs in the Donut Hole
|Calendar Year||Government Subsidy||Consumer's % Payment of Generic Drug Cost|
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Medicare Advantage Plans, sometimes called "Part C" or "MA Plans," are offered by private companies approved by Medicare and provide Medicare Part A and Part B coverage. Medicare prescription drug coverage is insurance run by an insurance company or other private company approved by Medicare. A Medicare Supplement plan is a health insurance plan provided by a private company that fills in the "gaps" in original Medicare coverage.