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Will the Coverage Gap or Donut Hole eventually just close and go away?



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Question: Will the Coverage Gap or Donut Hole eventually just close and go away?
Category: Closing the Coverage Gap

Answer: Not exactly.  The Donut Hole will not be eliminated from your Medicare Part D prescription drug plan coverage.  Sometimes members of the press, government, or advocates infer that the Donut Hole or Coverage Gap will be "eliminated" in 2019, but what they actually mean is, starting in 2019 (or 2020 for generic drugs), your generic and brand name drug purchases will cost a fixed 25% of retail while you are in the Donut Hole.

The good news:  If you have a Medicare Part D plan that has a fixed 25% cost-sharing (you pay $25 for a $100 drug), you will not notice that you entered the Coverage Gap since your drug costs at the pharmacy will not change.

As a reminder, you enter the Coverage Gap or Donut Hole after meeting your drug plans Initial Coverage Limit (for example, $3,820 in 2019).  And when you spend over your out-of-pocket limit (TrOOP) (for example, $5,100 in 2019), you will leave the Donut Hole and enter the Catastrophic Coverage phase of your Medicare Part D plan.

The generic Donut Hole discount 2020 and beyond
Although the Donut Hole or Coverage Gap phase will not be eliminated but, as Medicare states, “[b]y 2020 the coverage gap will effectively be closed for generics [and brand drugs in 2019]; beneficiary cost-sharing for generics in the gap will be 25% which is equivalent to [standard] initial coverage period cost-sharing”.

This means that, starting in 2020, when you purchase generic medications, your actual costs will count toward getting out of the Donut Hole and enter into Catastrophic Coverage.  So if you purchase a generic drug in the Donut Hole after 2020 with a retail cost of $100, you will pay 25% and get $25 credited toward meeting your annual TrOOP or Donut Hole exit point.

The brand-name Donut Hole discount 2019 and beyond
Previous to the Bipartisan Budget Act of 2018 (Pub.L. 115-123) (BBA) that President Trump signed into law on Friday, February 9, 2018 - you could plan to receive a 75% discount for brand-name drugs purchased in the Donut Hole starting with 2020, at which time the manufacturer would pay  50%, the plan would pay 25% and you would pay 25%.  So after 2020, if you purchase a brand-name drug with a $100 retail cost, you pay $25 and get $75 credit toward your TrOOP limit.

Now with the Bipartisan Budget Act of 2018, starting in 2019, you will receive the 25% Donut Hole discount so the cost of your brand-name drugs in the 2019 Donut Hole will be 25% of retail (instead of 30% of the retail price as planned).

And perhaps more importantly, the BBA shifts more of the Donut Hole discount onto the pharmaceutical suppliers (instead of the Medicare Part D plans) and this, in turn, will effectively move people with higher drug costs (over $678 retail per month) through the Donut Hole at a faster rate - and into Catastrophic Coverage.

Now, the 70% portion of the 75% discount will be paid by the pharmaceutical Industry and only the 5% portion of the total 75% discount will be paid by your Medicare Part D plan - and this means that, during the 2019 Donut Hole (and beyond), you will pay 25% of retail brand-name drug costs and received 95% of the retail drug cost as credit toward meeting your total out-of-pocket costs (2019 TrOOP is $5,100).

Updates on the horizon - Possible changes to how the Pharmaceutical Industry's discount is counted toward exiting the Donut Hole.
Medicare recently proposed changes to the Medicare Part D program "which includes the exclusion of [the pharmaceutical] manufacturer discounts from the calculation of beneficiary out-of-pocket costs [TrOOP] in the Medicare Part D coverage gap ".

This proposed change would  mean people would not be able to count the large portion of the Donut Hole discount paid by drug manufacturers toward reaching their TrOOP and leaving the Donut Hole - and this means, people would pay more to exit the Donut Hole - and fewer people would reach Catastrophic Coverage if this proposal is implemented.

In other words, if a person bought a brand drug in the 2019 Donut Hole, they would pay 25% of the retail price and only the $25 actually spent would count toward their out-of-pocket spending or TrOOP (as compared to getting credit for $95 as was originally written in the BBA (see above)).  The justification behind this proposal is that, with the 70% manufacturer discount credited to a person's TrOOP, many more people would reach Catastrophic Coverage costing the country a great deal of additional money.

(Please also see the May 11, 2018 document: https://www.hhs.gov/sites/default/files/AmericanPatientsFirst.pdf) and the May 16, 2018 Fed Reg: https://www.gpo.gov/fdsys/pkg/FR-2018-05-16/pdf/2018-10435.pdf)

Bottom Line:
The Donut Hole is not really closing or going away - you will still pay for your prescriptions - but you will pay only 25% of the total retail drug costs once you reach the Donut Hole (starting in 2019 for brand drugs and 2020 for both brand and generic drugs).

So when I enter the Donut Hole, will my drug costs always be less than what I paid during my Initial Coverage phase?

No.
  Your cost savings (or additional costs) will depend on the retail price of your formulary drugs and your Medicare Part D plan's cost-sharing or what your plan charges for a co-payment during your Initial Coverage Phase. 

For example, if you are using a brand drug with a $200 retail price and your Medicare plan has a fixed co-pay of $29 in the Initial Coverage Phase, you will pay the higher price of $50 (25% of $200) for the same drug once you reach the 2019 Donut Hole (assuming the retail price does not increase).  You can read more in our FAQ "Will I save money when I enter the Donut Hole?"

For more information about the Donut Hole discount, you can click here to see a chart of how the Donut Hole discounts changes from 2011 through 2020.


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