What is the Medicare prescription drug "donut hole"?

The donut hole, also known as the coverage gap, is one of the most complicated parts of the Medicare Part D prescription drug benefit. It refers to the period during which people with a Medicare Part D drug plan have to pay for a certain percentage of their drug costs.

When does the donut hole kick in?

In 2018, once your total drug costs (which includes what your plan has paid, as well as deductibles, coinsurance and copayments that you paid) reach $3,750 for the plan year, you're in the coverage gap. You'll have to pay 44% of the cost for your generic drugs and 35% of the cost for your brand-name drugs until you've paid a total of $5,000 in out-of-pocket expenses.

Once your out-of-pocket expenses total $5,000, your Medicare Part D drug plan coverage begins again. You're responsible for a small copayment or coinsurance and your Medicare drug plan covers the rest of your costs for the remainder of your plan year. This is known as catastrophic coverage.

How the coverage gap will work in 2018

Initial coverage period Coverage gap Catastrophic coverage period
$3,750 You'll pay ... $5,000
If your total drug spend adds up to $3,750, you'll reach the coverage gap. 35% for brand-name drugs If your out-of-pocket expenses total $5,000, you'll be eligible for catastrophic coverage with small copayments.
"Drug spend" means what you paid plus what your plan paid. 44% for generics "Out-of-pocket" includes what you paid for generics PLUS the full cost for brand-name drugs (what you paid plus the manufacturers' discounts).

Can I reduce my out-of-pocket costs?

The Affordable Care Act signed into law on March 23, 2010 made several changes to Medicare Part D to reduce your out-of-pocket costs when you reach the donut hole.

Beginning in 2011, Part D plan members got a 50% discount on brand-name drugs and a 7% discount on generics while they were in the gap. For 2016, the Part D discount increased to 55% on brand-name drugs and 42% on generic drugs.

The Part D discounts will continue to increase every year until 2020, when Part D members will get a 75% discount on both brand-name and generic drugs while in the gap.

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