October 6, 2016
If you’re a Medicare beneficiary who takes prescription drugs, you may have heard of the Part D coverage gap. Medicare plans that include prescription drug coverage generally cover your medications until you and your plan have spent up to a certain limit on covered prescription drugs in one year. Once the total of your costs and Medicare’s spending has reached that limit, your Medicare plan pays less for your prescription drugs, while you pay a higher share of your medication costs. This temporary coverage change is called a “coverage gap” (also called the “donut hole”).
The initial coverage limit and the percentage of prescription drug costs you pay in the coverage gap change from year to year (generally, your costs if you enter the coverage gap will go down each year until 2020. A combination of government subsidies and manufacturer discounts will gradually reduce out-of-pocket costs for covered medications to close the gap by 2020.
Medicare prescription drug coverage is available through either a stand-alone Medicare Part D Prescription Drug Plan (which works with Original Medicare), or through a Medicare Advantage Prescription Drug Plan. Both types of plans are available through Medicare-approved private insurance companies.
How the Medicare coverage gap (“donut hole”) works
When you and your Medicare Prescription Drug Plan or Medicare Advantage Prescription Drug plan together have paid a total of $3,310 (the initial coverage limit in 2016) on covered prescription drugs, the coverage gap starts. Costs like your yearly deductible (if your plan has one), copayments, and/or coinsurance costs count towards this limit. In addition, keep in mind that only costs spent by you and your plan on medications in your plan’s formulary, or list of covered drugs, count towards the initial coverage limit. The formulary may change at any time, but your Medicare plan will notify you if necessary.
In 2016, you pay 58% of your Medicare plan’s cost for generic drugs during the coverage gap. For covered brand-name drugs, you’ll pay no more than 45% of your Medicare plan’s cost.
If your out-of-pocket expenses for covered prescription drugs reach $4,850, you’re out of the coverage gap and 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. Keep in mind that your plan premium, the pharmacy dispensing fee, and money you spend on medications that are not covered on your plan’s formulary do not count towards the catastrophic coverage threshold and getting you out of the coverage gap.
Medicare prescription drug coverage resets each year. On January 1 of each year, you begin with your plan’s initial prescription drug coverage and its associated deductible and cost-sharing 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 or coinsurance for covered prescription drugs after the plan’s deductible is met (assuming the plan has a deductible).
As mentioned, healthcare legislation is slowly reducing your share of costs in the coverage gap every year until the gap is finally closed. By 2020, you’ll pay 25% of the costs of medications (both generic and brand-name) after you meet your plan’s deductible (if applicable) until you reach the yearly out-of-pocket spending limit for that year; if you reach that threshold, you’ll get catastrophic coverage.
How to avoid the coverage gap (“donut hole”)
Now that you have a better understanding of what your costs may be if you enter the coverage gap, you may be wondering if there’s anything you can do to avoid entering it in the first place. Keep in mind that not every beneficiary will enter the coverage gap. Whether you do depends largely on the prescription drugs you take, how often, how much they cost, and your specific Medicare Part D coverage. However, there are some things you can do to help lower your out-of-pocket costs and reduce your chances of entering the coverage gap:
- Switch to generics, if available. In general, brand-name drugs tend to be more expensive than generic drugs. If you currently take a lot of brand-name medications, ask your doctor if a generic equivalent is available that might be equally effective for treating your condition.
- Find out if your plan offers extra coverage in the coverage gap. If you do enter the coverage gap, some Medicare plans that include prescription drug benefits offer extra coverage to further reduce out-of-pocket costs in the coverage gap. Contact your Medicare plan to find out if this is available.
- Purchase your medications from a mail-order pharmacy. Some Medicare plans have mail-order pharmacy programs that may offer lower cost sharing when you purchase a larger amount of your prescription drugs. If there are certain medications you take over a longer period, you may be able to pay lower copayments when you get a larger supply through these programs. For example, the copayments for a three-month supply may be cheaper than getting a 30-day supply. Check with your Medicare Prescription Drug Plan or Medicare Advantage plan for more information.
- See if you’re eligible for help with prescription drug costs. If you qualify for the Extra Help (or Low-Income Subsidy) program, you can get help with certain Medicare Part D costs, such as premiums, copayments, and deductibles. Extra Help is a Medicaid program that helps low-income beneficiaries with certain prescription drug costs; if you’re eligible for this program, you won’t enter the coverage gap. In addition, some states have State Pharmaceutical Assistance Programs that help low-income beneficiaries with plan premiums and other expenses. Find out if your state has a program and if you’re eligible.
- Compare Medicare Part D coverage options. Taking the time to compare Medicare plan options in your area can save you money and lower your chances or entering the coverage gap. Medicare plans that cover prescription drugs can vary when it comes to copayments, coinsurance, and deductible costs – even when covering the exact same medications. Medicare plans typically put covered prescription drugs into different cost “tiers,” and prescription drugs on higher tiers have higher cost-sharing expenses than those on lower tiers. Spending time to find a Medicare plan that covers your prescription drugs at the lowest cost can help you save on out-of-pocket costs and lower your risk of entering the coverage gap. You can start browsing plan options using the eHealth plan finder tool on this page; if you like, you can even include your prescription drugs to view Medicare plans that cover your specific medications.
Phasing out the coverage gap (“donut hole”)
The coverage gap will be phased out over time (Medicare started phasing it out in 2011). However, even when the coverage gap ends in 2020, this doesn’t mean you’re your prescription drugs will 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 (“donut hole”)
|Year||You’ll pay this percentage for brand-name drugs in the coverage gap||You’ll pay this percentage for generic drugs in the coverage gap|
Now that you understand how the coverage gap works, would you like to hear about Medicare plan options that may cover your prescription drugs? If you take a lot of prescription drugs or have high out-of-pocket costs, finding the right Medicare Part D coverage may help you save money and lower your chances of entering the coverage gap. If you’d like help finding plan options that may fit your prescription drug needs, just call the phone number on this page to get assistance from a licensed insurance agent. Or, if you’d like to browse plans from the convenience of your home, enter your zip code into the plan finder tool on this page to view plan options in your area. If you like, you can even input your current list of prescription drugs to narrow your search to Medicare plans that cover your medications.