How does this Donut Hole really work?

Quick Overview

Here is a quick overview of the Donut Hole or Coverage Gap.

• According to the Medicare (or the Centers for Medicare and Medicaid Services, CMS), Standard or Model Medicare Part D prescription plan, the Donut Hole phase of your Medicare Part D coverage begins when your total retail drug costs reach $2840. (In past coverage years, some Medicare Part D plans have implemented a different Initial Coverage Limit and have begun the Donut Hole phase a little earlier – perhaps at a total retail drug spending of $1,800.)
• Please note, this $2840 is the total retail cost of the covered medications, not what you spend personally at the pharmacy. As a Medicare Part D beneficiary, you will pay only a portion of the $2840 and your Part D plan pays a portion. Your total retail cost of prescription medications is calculated from your Medicare Part D plan’s negotiated retail drug price – and every Medicare Part D plan can have a different negotiated retail drug price. So it is possible that you may reach the Donut Hole a little earlier or later than someone else who uses the exact same prescription medications, but this other person has enrolled in a prescription drug plan from another Medicare Part D plan provider.
• As a note, in the CMS model Medicare Part D plan, a beneficiary; like yourself, pays the first $310 dollars as an initial deductible and then is responsible for paying 25% of the next $2530, for a total out of pocket medication costs (or true out of pocket costs (or TrOOP) ) of $942.5 (excluding your monthly plan premiums).
• Again, following the CMS Standard model Medicare Part D plan, when you reach the Donut Hole, your Medicare Part D plan will have paid the difference between the negotiated retail cost of all your drug purchases and your out of pocket cost or $1897.5.
• However, most people simply say that you enter the Donut Hole phase of your Medicare Part D plan at the end of your Initial Coverage phase or when your reach your Medicare Part D plan’s Initial Coverage Limit (again, around $2840).
• With Changes in the Medicare law, a $250 Donut Hole Rebate program was implemented in 2010. Anyone reaching the 2010 Donut Hole would be automatically mailed a check for $250. Click here to read some frequently asked questions about the 2010 Donut Hole rebate.
• The 2011Donut Hole marks the beginning of an effort at closing the Donut Hole. In 2011, anyone reaching the Donut Hole will receive a 50% (fifty percent) discount on brand name formulary drugs and a 7% (seven percent) discount on all generic formulary medications. Click here if you would like to read more about the Donut Hole drug discount program.
• Still have a question on the Donut Hole basics or did we miss something about the Donut Hole? Click here and let us know.

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What about Medicare Part D prescription drug plans that vary from the CMS Standard Model Plan?

Medicare Part D Prescription Drug Plans that have tiered Co-Payment instead of the 25% Co-Insurance and no initial $310 deductible offer only a slight variation of this calculation – the Coverage Gap or Donut Hole still begins when total retail costs of covered medications reach $2840 (or perhaps lower depending on your Medicare Part D prescription drug plan’s Initial Coverage Limit).

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How do you keep track of the retail costs?

You do not need to keep track of your retail drug costs or retail drug spending. Your Medicare Part D plan provider will gather together all of the retail costs and watch where you are with respect to the Donut Hole phase of your prescription drug plan. Each month you will receive a Explanation of Benefits statement from your Medicare Part D plan and this monthly statement should provide you with an overview of your spending as you approach the $2840 mark (the place where you enter into the Donut Hole or Coverage Gap). If you have trouble understanding the Explanation of Benefits letter that you receive, please be sure to telephone the Member Services department of your Medicare Part D plan for assistance. The Toll-Free Number to your Medicare Part D plan is on the back of your Member ID card.

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What about Medications Purchased Outside theUS?

I use medications not covered by my Medicare Part D plan or sometimes I buy my medications from outside of the country (for instance, in Canada or Mexico). Are these prescription drug expenses included in the $2840 or any other Part D calculation?

Nope – any medications not included on your Medicare Part D plan’s formulary or drug list (also known as: out of formulary drugs) or drugs that you purchased outside of the United States fall outside of your Medicare Part D coverage and are not included in the $2840 or any other Part D calculation. If you use a medication that is not included on your formulary, you can ask your Medicare Part D plan for a formulary exception or coverage determination, whereby your non-formulary drug would be included on your own personal formulary. If your Medicare Part D plan denies your request for a coverage determination, you can appeal the denial – several times. Be sure to ask your Medicare Part D plan for details on the formulary exception and appeals process.

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How long do I remain in the Coverage Gap or Donut Hole?

Medicare Part D beneficiaries remain in the Donut Hole until their true out of pocket (or TrOOP) costs exceed $4550. The $4550 does not include the portion of your prescription expenses paid by the insurance carrier or your monthly Medicare Part D plan premiums – TrOOP only includes the amount you actually spent yourself.

What happens after I leave the Coverage Gap or Donut Hole?

After leaving the Donut Hole phase of a prescription drug plan, the Medicare Part D beneficiary enters into the last phase of the Medicare Part D program or Catastrophic Coverage. From this point on, the Medicare Part D beneficiary pays $2.5 per month for generics / $6.3 per month for name brand medications or 5% of the medication’s retail cost, whichever cost is higher.

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How about an example so I can estimate when I enter and leave the Donut Hole?

Suppose an example beneficiary, Mr. Smith, takes an expensive medication such as Betaseron (with an estimated retail cost of $775 for eight 0.3 MG vials per month), he will never pay more than $4550 out of pocket before the Catastrophic Coverage phase of his plan is reached. Assuming Betaseron is the only medication that Mr. Smith uses, he will enter into the Donut Hole in the third month of his plan ($2840 / $775).

Mr. Smith will then emerge from the Donut Hole into the low cost Catastrophic Coverage around the seventh month of his plan ($6447.5 / $775). In this way, Mr. Smith will receive low cost Catastrophic Coverage for the remainder of the year (or approximately five+ months).

During the Catastrophic Coverage phase, Mr Smith’s monthly medication costs should be reduced to $38.75 or 5% of $775. Please note: if Mr. Smith enrolled in a Medicare Part D plan where his medications are also covered through the Donut Hole, Catastrophic Coverage may never be reached because Mr. Smith’s true out of pocket medication costs would never exceed $4550 (with a plan providing Donut Hole coverage, Mr. Smith would probably pay around 25% of the retail price or 193.75 (assuming this medication is listed as a Tier IV or “specialty” drug) — twelve months of coverage = $2325 out of pocket cost).

So how does the Donut Hole Discount Program work in this example?
As an example, in 2011, Mr. Smith will receive a fifty percent (50%) discount on all brand name formulary drugs while in the 2011 Donut Hole. So he will pay one-half of the retail cost – but, he will get credit toward exiting the Donut Hole for the full-retail cost. So with the Donut Hole discount, you pay the discounted price, but your true out of pocket costs are credited with the full retail cost of the brand name medication.

For more on Medicare Part D – go here:
http://www.q1medicare.com/PartD-MoreOnTheDonutHolesOrCoverageGap.php