The Coverage Gap or Donut Hole is actually similar to a
second deductible in an insurance policy where you are, once again responsible
for your own coverage (or a portion of your own coverage due to the Donut Hole discount).
Your Medicare Part D plan has several parts or phases.
(1) the Initial Deductible (unless your plan has a $0
deductible)
(2) the Initial Coverage phase
(3) the Coverage Gap or Donut Hole
(4) the Catastrophic Coverage phase
If you have an Initial Deductible, you will usually pay 100% for your medications and this amount will count toward entering the Donut Hole. However, some Medicare Part D prescription drug plans are now covering your generic medications in the Initial Deductible. So, whether you or your plan pays for your medications in the Initial Deductible, the retail value of your medications counts toward your Initial Coverage Limit (see next section) and entering into the Donut Hole or Coverage Gap.
After the Initial Deductible, you will go into your Initial Coverage Phase where your plan covers a portion of your prescription costs and you pay some cost-sharing (co-payment or co-insurance). You will leave your Initial Coverage Phase and enter the
Donut Hole or Coverage Gap when your retail medication costs reach a certain
amount (not the amount of what you paid for your drugs, but the retail value of the medications you purchased - for instance, if you buy a medication with a retail value of $100 for a $30 co-payment, the $100 retail value counts toward your Initial Coverage Limit).
The Initial Coverage Limit can change each year. In 2014, the Donut Hole entry point is when
a person's total retail drug costs exceed $2,850 - in 2015, the Initial Coverage Limit or Donut Hole entry point is when retail drug costs exceed $2,960.
One large drug purchase (or multiple drug purchases in a single month)
can actually move you from the Initial Coverage Phase into the Doughnut
Hole,
so the only way to know exactly when you will enter or leave the
doughnut hole
is by watching your monthly Medicare Part D plan's Explanation of
Benefits statement carefully (you received this printed form in the
mail) or
you can contact your Medicare Part D plan and ask the Member Services
representative where you are relative to the plan's Coverage Gap.
Once you are in the Donut Hole or Coverage Gap, you receive a
discount on your brand-name and generic drug purchases.
The Donut Hole
discount can change each year until 2020 when the discount will be 75%.
In 2014, the discount is 52.5% for brand-name medications and 28% for
generics - the Donut Hole discount for 2015 is 45% for brand-name drugs
and 35% for generic drugs.
You
will stay in the Donut Hole phase until your true out-of-pocket costs
(also called TrOOP or total drug spend) reaches a certain level.
TrOOP is the total of what you
pay during the Initial Deductible (if you have one)
plus what you personally
pay in the initial coverage phase, before the Donut Hole,
plus what you pay
in the Donut Hole (and
plus you get credit for the 50% brand-name discount paid by the drug manufacturer in the
donut hole - for instance, if in the
2014 Donut Hole you buy a brand-name drug with a $100 retail value, you pay the $47.50 discounted price, but actually get credit for $97.50 toward meeting your TrOOP limit).
The TrOOP limit can change every year. For example, the TrOOP limit in
2014 is $4,550 - and TrOOP in
2015 is $4,700.
Once
you exceed your TrOOP limit, you enter the Catastrophic Coverage
portion of your Medicare Part D plan and pay the greater of 5% or $2.55
for generic drugs (or preferred drug that is a
multi-source drug) or the greater of 5% or $6.35 for all other drugs (such as brand-name medications) in
2014.
For example, if you purchase a brand-name medication in the
2014 Catastrophic Coverage phase that has a retail cost of $100, you will pay
$6.35 (since this fixed cost of $6.35 is higher than $5.00 ($100 * 5%).
No
matter where you are at the end of the plan year, your Medicare Part D plan
coverage ends on December 31st and the whole process begins again on January 1st of the next year.
To
help you visualize the phases of your Medicare Part D prescription drug
plan coverage, we have a Donut Hole Calculator or 2014 PDP-Planner
online illustrating the changes in your monthly
estimated costs based on the established 2014 plan limits mentioned above.
We also have several examples online to help you get
started with our 2014 PDP-Planner tool. You can click here for an example
of a Medicare beneficiary with relatively high monthly prescription
drug costs (retail prescription drug cost of $800 per month) and then change the monthly drug cost to whatever you wish.