Medicare Part D does not cover 100% of your prescription drug costs. There is a well known gap in this coverage that leaves many beneficiaries paying more than they expected, popularly known as the Medicare donut hole. Let’s discuss what it is and why it’s important to learn how you can potentially lower your costs.
How May The Donut Hole Impact You?
To understand the donut hole, first you must understand what Medicare Part D prescription drug coverage includes and how this coverage works. Part D plans cover self-administered brand-name and generic prescription drugs. Where Part D benefit plans differ is each plan creates a formulary, basically a list of medications, to treat the various conditions we all face.
Whether enrolling for the first time, renewing or changing plans, it is extremely important to confirm that your medications are on the plan’s formulary before making your decision. A medication not on the formulary can result in you paying 100% of the drug costs. Formularies can change annually, so making sure you review your plan during the Annual Enrollment Period is important since this is the only time of year you can make a change.
Whether your Part D benefits are administered through a stand-alone plan or as part of a Medicare Advantage plan, your plan will have four stages or phases of benefits. The first stage is the deductible stage and plans either have a deductible or not – it is their choice. During the deductible phase, beneficiaries pay 100% of their prescription drug costs until meeting their annual prescription drug deductible limit. During the deductible phase, most plans waive the deductible for medications in the Tier 1 and Tier 2, but enforce it for medications in Tiers 3, 4 and 5 (brand-name and specialty medications). Your health is always paramount, but identifying generic medications that are equally effective as brand name medications can result in lower overall prescription drug costs.
The second stage is the initial coverage stage. During this stage, your prescription drug costs are going to be shared with the insurance company. Depending on the particular tier, you may owe a copay or, in some cases, be responsible for some coinsurance.
The initial phase ends when you meet your plan’s Initial Coverage Limit, a number which varies and often increases each year. In 2020, that limit is $4,020 and in 2021 will increase to $4,130. Exceeding the yearly Initial Coverage Limit means you are now entering the donut hole and you will see a change in your cost sharing.
By entering the third stage, the coverage gap, you will pay a larger portion of your prescription medication costs until reaching your plan’s True Out Of Pocket (TROOP) Limit. TROOP is simply the amount of money that you, and others on your behalf, spend on your medications. For 2020, the Centers for Medicare and Medicaid Services have set the TROOP at $6,350. It is important to point out that your premiums for your Part D plan do not count toward your TROOP.
While the Donut Hole can be costly, looking back in history shows us how it has improved. In 2006, Part D benefits were passed and Medicare beneficiaries were responsible for 100% of the costs of medications in the Donut Hole. Today, through active legislation, you are responsible for only 25% of your medication costs in the coverage gap/donut hole. This is a positive trend that we hope continues.
The final stage of Part D benefits is the catastrophic stage. This begins when you reach your TROOP in a calendar year. Once you reach the catastrophic phase, your out-of-pocket costs are capped at 5% of the medication costs or a copay, whichever is higher. By reaching this phase, you will experience significant savings when compared to your costs in the coverage gap. You will remain in this stage through the end of the calendar year and your costs will rest on January 1 of the following year.
Are There Ways To Pay Less While in the Donut Hole?
The simple answer is yes. While you cannot completely remove out-of-pocket expenses during the coverage gap, you can look for plans that provide enhanced benefits during this phase. You will likely pay more in premiums, so weigh these added costs when evaluating your total Part D out-of-pocket expenses. And remember, premiums do not count towards your TROOP.
In the years that follow, your best bet is to account for the additional donut hole costs (capped at 25% of your prescription medication costs) when evaluating your Medicare coverage each year. Do this by selecting the most appropriate prescription drug medication coverage based on your medical and financial needs. Local Medicare insurance agents can provide valuable knowledge and help identify the plan or plans that best suit your specific needs. These certified agents can help you compare plans to find the one that covers the prescriptions you need or even help you find plans that may offer additional coverage for brand-name drugs in the donut hole. Keep in mind that selecting a Part C or Part D plan with additional coverage may come at a higher monthly cost. Weigh the pros and cons in your particular situation, and reevaluate your plan each year to ensure your coverage best reflects your needs.
Educating yourself is important to avoid getting caught with unanticipated out-of-pocket costs while in the donut hole. Even though the amount you pay is capped at 25% of prescription medication costs as of 2020, it’s important to account for these costs in your choice of coverage. For one-on-one assistance with how the donut hole impacts your coverage and for free assistance reevaluating your coverage options, contact us today. At Medicare Portal, our licensed, local Medicare insurance agents have the knowledge and resources you need to make an educated decision that suits your needs.