Medicare Part D policies are private insurance plans that cover the cost of prescription drugs you pick up in the pharmacy or have delivered. However, there may still be deductibles, premiums, coinsurance, and copayment costs to meet out of pocket. The “donut hole” that exists in the space between the initial coverage limit on Medicare Part D and the catastrophic-coverage threshold has shrunk considerably since 2010 due to a provision of the Affordable Care Act, but there is still a gap between those types of coverage. Here is our breakdown of what the “donut hole” means for Medicare Part D enrollees, how it changed through 2020, and some tips for saving money on your prescription drug costs.
Each year, Medicare has an initial coverage limit for Part D prescription drugs that the carrier of a Medicare Part D policy will pay for. In 2021, that limit is $4,130. This means if you require prescription drugs that cumulatively cost more than that limit amount within one year, your Medicare Part D policy used to cover only a minimal amount of the cost of your prescription medications. This used to mean that you would be paying the full cost of the drug. After 2020, you will be paying 25% of the total cost of the drug.
However, once you reach what is known as the catastrophic-coverage threshold—$6,550 in 2021—you will be back to paying about 5% of prescription drug costs. The “donut hole” lies in between these two thresholds. When you have paid more than the initial coverage limit, but less than the catastrophic-coverage limit, you used to pay the full amount for prescription drugs out-of-pocket. Now, you are likely to be responsible for 25% of the cost of the drugs in this coverage gap.
The donut hole did not exactly go away, but it is considered closed for the most part with the Affordable Care Act of 2010. This is because the out-of-pocket costs are now significantly reduced in the coverage gap. There is still a gap between the initial coverage limit threshold and the catastrophic-coverage threshold. However, within this gap, the law now states that you pay 25% of the total cost of your prescription drugs.
Having to pay the total amount for your prescription drugs between the initial coverage limit and the catastrophic-coverage threshold is gone in 2021. However, because you pay 25% of the cost of your drugs, you may still notice a change in price for your prescription drugs in the “donut hole.”
For example, if 25% of the total cost of the medication you take is a higher amount of money than your previous coinsurance or copay amount, you will end up paying more out-of-pocket each time you pick up your prescription.
Most Medicare enrollees will not enter the “donut hole” coverage gap. If you don’t take either a lot of medication or particularly expensive medication, you are likely to stay within the initial coverage limit for the year.
For the people who do, the approximately 25% of total drug costs you are responsible for can sometimes be avoided by signing up for the Extra Help program. To qualify for the Extra Help program, you must be living in one of the 50 U.S. states or Washington D.C., be receiving Medicare, and have limited resources and income. The Extra Help program can prevent you from going over the initial coverage limit since that money isn’t counted towards your payments.
Other Pharmaceutical Assistance programs may exist in your area, as well. Switching to lower-cost or generic drugs is an option you can discuss with your health provider. Some Medicare programs also offer more support than others during the gap between the initial coverage limit and the catastrophic-coverage threshold.