Medicare's Part D prescription drug coverage gap or 'donut hole' occurs after the initial coverage phase when the beneficiary's total drug cost reaches a specific limit. The initial limit for 2023 is $4,660 and it includes what the beneficiary and insurance carrier have paid for their drugs. Once this limit is hit, a beneficiary is said to be in the 'donut hole', where they are responsible for the payment of a percentage of drug costs.
What happens when the donut hole is reached?
Beneficiaries may be responsible for a percentage of their drug costs while in the coverage gap, but they usually will not pay more than 25% of the cost of brand name and approved drugs. There are some plans that offer lower donut hole costs, but this depends on how the individual's plan has negotiated the specific drug's pricing with the manufacturer of the drug. While the beneficiary is paying their 25% for their drugs, almost the full price of each drug counts as out-of-pocket expenses for them. This helps the beneficiary get out of the donut hole faster, they will then enter the catastrophic coverage phase.
Getting out of the donut hole
The catastrophic coverage pricing goes into effect when an individual as spent $7,400 in out-of-pocket costs. This limit can be reached through what the beneficiary pays for covered medications, costs covered by family members, charities, or other people on their behalf. Once in the catastrohpic coverage phase, the beneficiary will pay significantly lower copays or coinsurance for their approved medications for the rest of the calendar year. These copays/coinsurance costs typically do not surpase 5% of the medication's total cost.
Catastrophic coverage out-of-pocket costs
Below is a list of some qualifying out-of-pocket costs that will help an individual reach their catastrophic coverage phase for the year.
The Medicare Part D or Advantage Plan the individual is enrolled in will keep track of how much the beneficiary has spent out of pocket for covered drugs, and their progression through the various coverage phases. This information will be present on the beneficiary's monthly plan statements.
It is also important to note that beneficiaries with 'Extra Help' do not have a coverage gap. These individuals will pay different amounts for their drugs throughout the year, typically a flat low copayment for covered medications. Drug costs may also be different than those described above for people enrolled in their state's SPAP.
