About Medicare
Understanding the Donut Hole
Dear AMAC,
I was told I will likely reach the “donut hole” by July and my prescription copays will change every month, but I’m still confused. Can you explain how the donut hole works?
-Sarah (Kansas City, MO)
Hello Sarah,
Drug costs can fluctuate throughout the year due to factors such as the retail cost of your drugs and which coverage phase you are in. Since you know you will reach the coverage gap – or donut hole – this is an indicator that your drug costs are high.
Let’s look at how you will move through the different phases of coverage:
- If your plan has a deductible, you will first pay the retail cost of your prescriptions until you have met the total deductible amount.
2. Once you have met the deductible, you and your plan will share the cost of your drugs in the initial coverage phase. This means you will have set copays and coinsurances for different tiered drugs.
For example: Tier 1 drugs- $0 copay, Tier 2 drugs- $15 copay, Tier 3 drugs- $45 copay, etc. During this phase, if you and the plan pay more than $4,660 in drug costs you will move to the next phase of coverage- the coverage gap (donut hole).
3. In the coverage gap, your responsibility changes to 25% of the cost of your drugs. Previously, you paid a fraction of the cost. Now you will be paying a bigger chunk.
For Example: Let’s say your Tier 3 drug (that you used to pay $45 for) has a market cost of $1,000. While in the coverage gap you will now pay 25% of the cost of that drug, which is $250. This is why many people are caught off guard when they reach the coverage gap!
4. You will continue to pay 25% of the cost of your drugs until you have paid $7,400 out-of-pocket; this will bring you into the last phase of coverage, catastrophic coverage. Here you only pay a small coinsurance percentage or copayment for covered drugs for the rest of the year.
As you can see, your drug costs will take some twists and turns. Unfortunately, determining when you reach the coverage gap depends on the cost of your drugs rather than your drug plan itself.
Many people ask for a plan that does not have a coverage gap, but no such plan exists in the Medicare market. Even if you purchased the highest premium plan, you would still eventually reach the coverage gap if you take high cost drugs.
For help with Medicare plans – or any questions you may have about Medicare – contact AMAC’s Medicare Advisory Service at 1-855-611-4856 or request a quote below!
