Hitting the Medicare “Donut Hole”


Most Medicare drug plans have a temporary limit on what they will cover for prescription drugs. This limit is known as a “coverage gap” or “donut hole.” Once Medicare patients reach their plan’s initial coverage limit, they will be responsible for paying all of their drug costs until they reach a certain out-of-pocket amount, when their insurance once again kicks in. Every drug plan is required to explain the coverage gap, but many consumers are surprised when their coverage vanishes and they are required to pay 100% of drug costs. Recently passed health care reform legislation closes the hole over the next ten years.

Typically, Medicare patients are covered for drug costs of up to $2,830 in 2010 (once they pay a deductible, if their plan has one). Upon reaching that limit, many patients are shocked to find they are required to pay 100% of the cost of their prescription drugs until their total out-of-pocket cost reaches $4,550. It is important to note that the coverage gap typically does not apply to patients with limited income and resources and those who qualify for extra help with their prescription drug costs. These individuals will continue to pay the same copayment or coinsurance amounts during the coverage gap.

How the Coverage Gap Works

  • Deductible Phase. If you join a Medicare prescription drug plan, you may be required to pay up to the first $310 of your drug costs, commonly referred to as the deductible.
  • Initial Coverage Phase. After meeting the deductible, you enter the “initial coverage phase” where you will remain until your total drug spend reaches $2,830. During this phase of coverage, you will pay approximately 25% of the cost of your medications (through monthly premiums and copays/coinsurance) while the government subsidizes the remaining 75%.
  • Coverage Gap. Once you reach $2,830 in total drug costs, you will be required to pay the full cost of your prescription medications until your total out-of-pocket cost (including your annual deductible and copay amounts) reaches $4,550.
  • Catastrophic Coverage. When you spend more than $4,550 out-of-pocket, the coverage gap ends and your drug plan pays most of the costs of your covered drugs for the remainder of the year, also known as catastrophic coverage. You will be responsible for a copay of $2.50 for each generic drug and $6.30 for other drugs (or 5%, whichever is higher).

How Health Care Reform Affects the Donut Hole

The health care reform bill closes the Medicare Part D "donut hole" over the next ten years (2010-2020). Patients who hit the donut hole in 2010 will receive a one-time $250 rebate. Beginning January 1, 2011, patients will also automatically receive a 50% discount off the negotiated price for brand-name prescription drugs that are covered under Part D.

The donut hole is unique to Medicare Part D, further confusing many seniors. Most do not even know their plan has a coverage gap until they fall into it. If you have questions, please contact your trusted local community pharmacist.

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