Understanding the Medicare Part Donut Hole

One of the more confusing parts of Medicare Part D is the gap or more commonly known as the Donut Hole.

Very few people understand how it works, but it can greatly impact how much you pay each year for your prescriptions.  Let’s get clear on what it is so you can plan for it, or possibly reduce your exposure to the hole.

 The Gap Breakdown

Here is how it works.

Some plans have a deductible that you must meet for their plan’s coverage to begin.  The deductible cannot be higher than the rate set by Medicare.   This year that maximum Part D deductible is $405.  You pay 100% of your prescription expenses until you hit your deductible.

After the deductible, you are responsible for the co-payment or co-insurance amount that your plan sets. The copayments are usually determined based on the tier of your medication in the plan. Every plan has different tiers and co-pays so it’s important to pick the plan that fits your medications best.

As you and your insurance plan pay for prescriptions, you start counting toward the Donut Hole. The Donut Hole in 2018 exists between $3,750 to $5,000.

With the deductible, co-insurance amount, and what your plan pays for your prescriptions you may reach the ICL, or Initial Coverage Limit. The ICL is $3,750 and at which time you will fall into the Donut Hole. (Note the ICL is measured by the actual retail value of the prescription drug and not by how much you paid for the drug. For example, if the drugs retail value is $150 and you pay $40, the full $150 retail value goes towards your ICL. The $40 goes towards the TrOOP or Total out-of-pocket costs).

While in the Donut Hole

During the Donut Hole, you will pay for a higher percentage of the prescription drugs costs, and your plan will pay a lower amount. (In 2018 participants will pay 35% of the total cost of brand name prescriptions and 44% of generics). You will also receive manufacturer coupons for your brand name drugs for 50% off. To help alleviate some of the costs. For example, if a brand name drug costs $100, you will be responsible for $35. Then you will receive a manufacturer coupon that will cover half of the retail cost, which is $50. Between the amount you paid and what coupon contributed, you’ve put in $85 for towards your prescription.  Your plan will pick up the remainder.

Some people consider the TrOOP to be the exit out of the Donut Hole. For 2018 the TrOOP amount is $5,000. Which means when you have spent a total of $5,000 you will hit the catastrophic phase of your coverage. During this time, you are responsible for 5% of the retail cost of your drug and your Part D plan and the government pay for the remainder of your prescription costs. The TrOOP includes the $3,750 from the ICL, and the amount you spend during the donut hole phase.

Some things to consider

Most people do not fall into the Donut Hole until the end of the year. Which means for most of the year you will be able to rely on your plans coverage for your prescriptions.

There are ways you can delay falling into the Donut Hole. You can talk with your doctor about cheaper alternatives to the medications your taking. You can also consider 90 days supplies to offset some of the costs. But most importantly picking the right Part D plan that best suits your prescription needs, will be the most beneficial to you.

The Donut Hold can be very costly so it’s important to understand if you will fall into the hole so you can plan for those expenses.

But even more importantly it’s critical you pick the right prescription plan when you first join Medicare but also review your plan every open enrollment. We see people make mistake picking their Part D plan. This mistake costs them thousands of dollars for various reason that include being in the Donut Hole for too long.

If you would like our help picking your prescription plan, please contact us.

Article Courtesy: The Medicare Coach

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