Taking your prescribed medications is a crucial aspect of maintaining good health, easing symptoms and treating medical conditions. It’s also important to pay attention to the out-of-pocket costs associated with your medications. To help with budgeting, it’s crucial to understand the four phases of Medicare Part D prescription drug coverage, particularly costs associated with the “donut hole.” Each phase of your Part D plan can have various out-of-pocket drug expenses. Let’s explore the anticipated costs in the coverage gap and how you can lower your prescription drug expenses while you’re in the donut hole.
Stages of Part D Prescription Drug Coverage
Medicare Part D prescription drug coverage contains four annual phases: annual deductible, initial coverage, coverage gap and catastrophic coverage.
Stage One: Annual Deductible
The annual deductible begins at the beginning of each plan year, which is always January 1. When the year begins, so will your deductible for eligible prescriptions. With any annual deductible, you are responsible for the full cost of your prescriptions until you meet the deductible amount. Once you meet your deductible, or if your plan has no deductible, you’ll move on to the next stage.
Stage Two: Initial Coverage
The next stage, initial coverage, pays for a portion of your prescription drug costs (as long as the prescribed medication is on your plan’s formulary [list of covered drugs]). The amount you pay for your prescriptions during this stage will either be a copayment which is a set dollar amount, or a coinsurance which is a percentage of the cost of the drug. Once the portions you are paying meet the initial coverage limit that Medicare set for that year, this stage will end.
Stage Three: Coverage Gap (Donut Hole)
When you and your Part D plan meet the initial coverage limit by spending a total of $4,430 (in 2022) on covered drugs in a year, you reach the donut hole. In the donut hole, your plan is limited on how much they pay for your prescriptions, so you’ll be paying 25% of the total cost for covered prescription drugs. Entering the donut hole can increase out-of-pocket costs for Medicare beneficiaries, especially for those with greater or more expensive medication needs. While in the donut hole, you’ll need to spend an additional $2,620 out-of-pocket for covered drugs in 2022 to exit the coverage gap. The Center for Medicare and Medicaid Services (CMS) has set the spending limit on the donut hole at $7,050 for 2022. When you reach this amount based on total out-of-pocket prescription drug costs during your plan year, you move into the catastrophic coverage phase.
Stage Four: Catastrophic Coverage
The last stage is the catastrophic coverage stage. As we mentioned above, in 2022 you need to spend $7,050 in out-of-pocket costs to get to this stage, but once you do you will have a low copayment or pay 5% of the medication costs. This is because your Part D plan pays 95% of the covered medication costs in this phase for the duration of the plan year.
Understanding the Medicare Part D Coverage Gap: The Donut Hole
Nowadays, when you reach the donut hole, you are responsible for 25% of your prescription drug costs, but that wasn’t always the case. Before 2019, if you reached the coverage gap stage (known as the donut hole) you would have been responsible for 100% of your prescription costs until you reached the catastrophic coverage stage.
Beneficiary cost responsibilities for covered medications in the donut hole began to shrink when Congress passed the Affordable Care Act in 2010. But though it’s a 75% cost reduction, paying for 25% of your medication costs during this stage can still be a significant financial burden.
You may be wondering what contributes to your out-of-pocket costs to get you out of the donut hole and into the catastrophic coverage stage. Costs like your Part D annual deductible, the amount paid during the initial coverage period, the price you paid for drugs while in the donut hole, amounts paid by family members or charities on your behalf and any donations from drug assistance programs contribute to the total you need to move into the catastrophic coverage stage.
Strategies to Lower Your Prescription Drug Costs While You Are in the Donut Hole
If you are in the donut hole and wondering how you can lower your Medicare Part D prescription costs, you have a few options.
First, you could consider discussing with your medical providers your options to switch to a lower cost medication. For example, switching from a name-brand drug to a generic drug.
Second, you could order your drugs in bulk with a three-month supply. Many Medicare plans will have a discount for using their mail-order program, and local pharmacies may also have discounts for a 90-day supply.
The final option is to look into assistance programs that offer financial help with medication costs. Apply for the Extra Help program (offered through the Social Security Administration), the State Pharmaceutical Assistance Program, the Patient Assistance Program or explore local and national charities.
If you need assistance lowering your out-of-pocket costs in the donut hole, understanding how to budget for yearly prescription drug expenses, or evaluating other Part D coverage options, contact Medicare Portal. Our team of licensed Medicare insurance agents are here to help at no cost to you. Contact us today for assistance over the phone, online or in person with all your Medicare questions and needs.