One of the most dreaded and least understood parts of Medicare is the coverage gap, which is commonly referred to as the donut hole. The best way to explain the donut hole is to give a brief review of how Medicare Part D works. Part D plans have four stages that proceed in this order:
- Deductible – Not all plans have the deductible phase. If a plan has a deductible phase, you will be responsible for the full cost of all drugs until your deductible is met. Some plans do not apply the deductible phase to generic prescriptions and allow them to pass straight into initial coverage.
- Initial Coverage – This is the portion of the plan where you pay a set, reduced amount for your prescriptions. Most beneficiaries will not leave this phase. If your prescriptions do not increase drastically at some point in the year, then you are likely not going into the donut hole. The costs in this phase are set by your insurance provider.
- Coverage Gap (Donut Hole) – You enter the donut hole when the total cost of your prescriptions reaches a certain level ($3700 in 2017). This total cost is the actual cost, not what comes out of your pocket. You stay in this donut hole until the total out of pocket cost reaches a predetermined maximum ($4950 in 2017). The total out of pocket includes discounts from the manufacturer. For costs in the donut hole, visit here.
- Catastrophic Coverage – If you reach the total out of pocket maximum for the donut hole, you will enter the catastrophic coverage phase. In this phase the costs of all medications are greatly reduced. Pricing in this stage is typically 5% of actual costs.
Whether you are a frequent visitor to the donut hole or not, you should have your prescriptions checked annually to see if there is a more affordable plan for you. If you have experienced the high costs of the coverage gap, you will be happy to know that Medicare is gradually reducing the costs. This chart will detail the future cost reductions.