DEFINITION: Medicare’s “donut hole” refers to the coverage gap in your Medicare Part D prescription drug benefit — the point where your prescription drug expenses exceed the initial coverage limit of your plan, but have not yet reached the catastrophic coverage level.
When Medicare Part D was first introduced, patients paid 100 percent of their drug costs while in the donut hole (as opposed to 25 percent before the donut hole, and 5 percent after the donut hole). The Affordable Care Act included a provision to close the donut hole by 2020, and the percentage of costs that enrollees pay while in the donut hole has been steadily shrinking since 2011. In 2018, while in the donut hole, enrollees pay 35 percent of the cost of brand-name drugs and 44 percent of the cost of generic drugs. By 2020, there will be no donut hole — enrollees will pay 25 percent of all drug costs until they reach the catastrophic coverage level.
But for now, when you reach the donut hole, you’ll no longer have a 25 percent coinsurance payment (or similar copay, if that’s how your plan is designed) and will instead begin paying more of your costs. In 2018, you enter the donut hole when the total cost of your drugs (including the part you pay and the part your plan pays) reaches $3,750. Note that you will have paid much less than this amount out-of-pocket, because your drug plan will have picked up the majority of the cost.
You reach the catastrophic coverage level (ie, get out of the donut hole) after your costs reach $5,000 in 2018, including your deductible (which can be no more than $405 in 2018), copays/coinsurance, and the manufacturer discount for brand-name drugs that you receive while in the donut hole. In 2018, the manufacturer’s discount is 50 percent on brand-name drugs while you’re in the donut hole. You’re paying 35 percent, the drug plan is paying 15 percent, and the manufacturer’s discount is 50 percent. The portion you pay and the portion covered by the manufacturer’s discount (a total of 85 percent in 2018) counts towards getting you to that $5,000 mark. For generic drugs, only the 44 percent that you pay will count towards reaching the $5,000 upper limit of the donut hole.
Once you come out the other side of the donut hole and reach the catastrophic coverage level, your plan pays most of your prescription drug expenses through the end of the year, leaving you with minimal copays or coinsurance. At this coverage level, your prescription costs for the rest of 2018 are limited to the greater of 5 percent coinsurance, or copays that amount to $3.35 for generics and preferred multi-source drugs, and $8.35 for other brand-name drugs.