The “donut hole” coverage gap requires beneficiaries to pay substantially more for their drugs when they have reached a certain level of spending, and it was included in the standard benefit design by the law that originally established the Part D program. While a few plans offer some coverage in the donut hole, most beneficiaries who reach the gap will experience increased costs.
In 2018, under the standard benefit, beneficiaries will enter the donut hole if their out-of-pocket spending — not including premiums — totals $ 3,750 at some point during the year. If you qualify for Extra Help, however, you will not be subject to the increased costs that begin at this level of spending.
Fortunately, the health reform law, the Affordable Care Act, sharply reduces the costs faced by beneficiaries who enter the donut hole, eventually closing it in 2020. Medicare coverage of generic drug costs increases by seven percent each year from 2011-2020. Beginning in 2011, beneficiaries received a 50 percent discount in the costs of their brand-name drugs. This discount has risen incrementally in the years since. In 2018, the brand discount will be 65 percent and the generic drug discount will be 56 percent.
The coverage gap ends when a beneficiary has spent a total of $5,000 not counting premium costs. At this point, catastrophic coverage begins and the beneficiary pays either five percent of qualified costs, or a copayment of $3.35 for a generic or preferred drug and $8.35 for other drugs, whichever is greater, for the remainder of the year. In calculating total spending, the full price of brand-name drugs is counted (not just the price paid by the beneficiary at a 65 percent discount), but for generic drugs, only the portion of costs paid by the beneficiary is counted.
In 2020, beneficiaries will face the normal coinsurance payments of 25 percent of their drug costs (the level of cost sharing that applies now before beneficiaries reach the donut hole).
It is important to note several additional aspects of the drug discount in the donut hole:
- The 65 percent discount on brand-name drugs only applies to medications on your plan’s formulary or drugs for which an exception to plan rules has been approved.
- A small dispensing fee, probably just a few dollars, will be added to the cost of drugs purchased with a discount.
- If your plan covers some drug expenses in the coverage gap, the discount will apply to the price you would pay under the plan’s donut hole coverage.