The Medicare prescription coverage gap (also referred to as the Donut Hole) confuses many seniors each year. Most Medicare drug plans have a coverage gap whether it is in a Stand-Alone Medicare Part D Plan or a Medicare Advantage Prescription Drug Plan (also known as an MAPD). This means there is a temporary limit on what the drug plans will cover for drugs.
Not everyone will enter the coverage gap. The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs. Once you and your plan have spent $4,130 on covered drugs in 2021, you’re in the coverage gap. This amount may change each year. Also, people with Medicare who get Extra Help paying Part D costs won’t enter the coverage gap.
Brand-Name prescription drugs explained
Once you reach the coverage gap of $4,130, you’ll pay no more than 25% of the cost for your plan’s covered brand-name prescription drugs. You’ll pay the discounted rate if you buy your prescriptions at a pharmacy or order them through the mail. Some plans may offer you even lower costs in the coverage gap. This discount will come off the price that your plan has set with the pharmacy for that specific drug.
Although you’ll pay no more than 25% of the price for the brand-name drug, almost the full price of the drug will count as out-of-pocket costs to help you get out of the coverage gap. What you pay and what the manufacturer pays (95% of the cost of the drug) will count toward your out-of-pocket spending. Here’s a breakdown:
What the drug plan pays toward the drug cost (5% of the cost) and dispensing fee (75% of the fee) aren’t counted toward your out-of-pocket spending.
Example:
Mrs. Anderson reaches the coverage gap in her Medicare drug plan. She goes to her pharmacy to fill a prescription for a covered brand-name drug. The price for the drug is $60, and there’s a $2 dispensing fee that gets added to the cost, making the total price $62. Mrs. Anderson pays 25% of the total cost ($62 x .25 = $15.50).
The amount Mrs. Anderson pays ($15.50) plus the manufacturer discount payment of $42 ($60 x .70 = $42) count as out-of-pocket spending. So, $57.50 counts as out-of-pocket spending and helps Mrs. Anderson get out of the coverage gap. The remaining $4.50, which is 5% of the drug cost ($3) and 75% of the dispensing fee ($1.50) paid by the drug plan, doesn’t count toward Mrs. Anderson’s out-of-pocket spending.
If you have a Medicare drug plan that already includes coverage in the gap, you may get a discount after your plan’s coverage has been applied to the drug’s price. The discount for brand-name drugs will apply to the remaining amount that you owe.
Generic Drugs
Medicare will pay 75% of the price for generic drugs during the coverage gap. You’ll pay the remaining 25% of the price. The coverage for generic drugs works differently from the discount for brand-name drugs. For generic drugs, only the amount you pay will count toward getting you out of the coverage gap.
Example:
Mr. Evans reaches the coverage gap in his Medicare drug plan. He goes to his pharmacy to fill a prescription for a covered generic drug. The price for the drug is $20, and there’s a $2 dispensing fee that gets added to the cost. Mr. Evans will pay 25% of the plan’s cost for the drug and dispensing fee ($22 x .25 = $5.50). The $5.50 he pays will be counted as out-of-pocket spending to help him get out of the coverage gap.
Items that count towards the coverage gap
Items that don’t count toward the coverage gap
How do I get out of the donut hole?
In all Part D Plans whether it is a Stand-Alone prescription drug plan or a Medicare Advantage Prescription Drug plan, you enter catastrophic coverage after you reach $6.550 in out-of-pocket costs for covered drugs. This amount is made up of what you pay for covered drugs and some costs that other pay. During this period, you’ll pay a significantly lower copay or coinsurance for your covered drugs for the remainder of the year. The out-of-pocket costs that help you reach the catastrophic coverage include:
Your Part D Plan should keep track of how much money you have spent out of pocket for covered drugs and your progression through the coverage periods—and this information should appear in your monthly statements.