Donut Holes, Anyone?
One question I get often is “What is the donut hole?” Most people are not happy when they find out it’s NOT a tasty treat!
When it comes to Medicare Drug coverage (Part D), there are four stages that you may go through during the year. It’s important to understand how each stage works and how they impact your prescription costs. Based on the Part D plan you choose, you may or may not go through all stages. Those who take a few maintenance drugs may only go through stage one or two. However, those with many, or higher cost medications may move into the “donut hole” also known as the coverage gap and then possibly the catastrophic stage.
The donut hole (coverage gap) opens when you and your plan have paid up to a certain limit for your drugs in the calendar year. In 2022, the amount of the limit is $4430. When your total drug costs, meaning the amount you pay and the amount your plan pays reaches $4430, you enter the Donut Hole (coverage gap). During this stage you will pay 25% of the cost for both brand-name and generic drugs. You will stay in this stage until your total out-of-pocket costs reach $7050 in 2022. If you make it to Stage 4 (catastrophic coverage) you will pay a small copay or coinsurance amount. The coverage stages start over at the beginning of the year and the limit amounts are set by Medicare.
The chart below shows the different stages:
Here is a real-life example of the Donut Hole / Coverage Gap:
Will is on a Medicare Prescription Drug Plan through a popular carrier. The plan he is on has a $480 deductible. Will takes several low-cost generic drugs and one insulin drug. In January, he will pay out of pocket the first $480 of cost for his prescriptions. Starting in February through April, he will pay a copay for each drug based on his plan’s formulary and drug Tiers. In May his total drug costs will have reached the limit of $4430 and he will be in the Donut Hole. At this time, he will begin to pay 25% of the cost of his drugs. Based on the total out-of-pocket limit of $7050, he will exit the Donut Hole in August and enter Stage 4 where he will pay a small copay for his drugs the rest of the year. The limits will reset again in January of the next year.
What I typically tell people is everyone’s situation is different. It is best to evaluate plans based on the drugs you are currently taking. Looking at formularies and drug costs of the plans available in your area is imperative. Each carrier has their own formulary, and it is quite possible the same drug could be a different Tier level from carrier to carrier.
Working with a local agent / broker is very helpful in making sure you are being shown all your options. If you are currently in a Medicare Part D plan or a Medicare Advantage plan and have not reviewed your plan in a while, I would honored to look at your unique situation and offer any guidance.