I'm in the Medicare donut hole. What now?

Written by Rebecca Farley | Posted September 23, 2019 | Updated November 18, 2019

Mind the gap! Medicare, our nation’s public health insurance available to all Americans 65 and older, and others with disabilities, has a nasty, frustrating flaw: the Medicare donut hole. Its official name is the “coverage gap,” as it is effectively a gap in coverage for those who have a Medicare drug plan. The gap occurs when an individual has met a set cost for prescription drugs. In 2019, this “set cost” — established by the government — is $3,820, according to Medicare.gov. Once this limit is met, drugs will start costing more than they did before. The good news is that, as explained below, the gap has been closing.

Sorry. What is the gap, exactly?

When the total cost of covered drugs you have purchased over the year—including by you, the drug company rebates, and with the help of Medicare—reaches $3,820, you have entered the Medicare coverage gap, otherwise known as the “donut hole.”

It’s called the “donut hole” because it exists after the initial coverage phase is met and the catastrophic coverage phase begins. Once a person meets $5,100 of out-of-pocket spending, and total spending reaches $8,140, catastrophic coverage takes over and enrollees need only pay 5% of the cost of prescription drugs.

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What kind of coverage is offered during the donut hole?

This is important, although it’s going to get complicated. Just hold onto your hat and try to remember that Medicare is, ultimately, a good thing. Medicare does offer coverage during the donut hole period. According to Medicare.gov, in 2019, you will not pay out-of-pocket more than 25% the cost of a brand name prescription drug when operating under the gap. For generic drugs, you will not pay more than 37% of the cost. (Beginning in 2020, in the donut hole, patients will be responsible for only 25% of the cost of generic drugs.)

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When did this “donut hole” first emerge and how is it being filled?

As called for in the Medicare Prescription Drug, Improvement and Modernization Act of 2003, Congress introduced the Medicare Part D expansion, which covered prescription drugs. The Part D plans first became available for use in 2006. However, at the time, the expansion did not offer any coverage during the “gap.” This was a huge deal: After a certain amount of spending on drugs had been done, Medicare enrollees were suddenly tasked with the full cost of prescription drugs.

The gap is seen as a primary issue in Medicare coverage. In 2010, the Obama Administration introduced a plan to fix the gap as a part of the Patient Protection and Affordable Care Act (ACA). This plan projected that the gap would close by 2020, enforcing escalating discounts for patients operating under the donut hole.

In 2018, reports emerged that the gap would close a year earlier due to legislation passed by Congress. According to AARP, a budget proposal passed in 2018 stipulated that pharmaceutical companies would have to pay 70% of drug costs during the coverage gap, therefore helping to close the gap entirely. As of today, Medicare Part D covers a healthy portion of drug costs during the coverage gap, but it does not subsidize the costs of drugs entirely.

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If the gap disappears, will I be able to get lower-priced drugs all year? No matter what?

Yes, but that doesn’t mean coverage will meet all of your needs. Therein lies the issue with Medicare: Everyone’s needs are different, and, with the rising costs of pharmaceutical drugs, even year-round discounts do not help. A discounted drug is not a free drug, and, for many, prescription medications are a daily necessity. According to a 2019 report from Kaiser Health News, Medicare enrollees might still pay as much as $5,000 per year for prescription drugs, even with the closing Medicare coverage gap.

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Is this something the government plans to fix?

This is something the ACA already planned to fix. Whether or not the government continues to fix this issue is somewhat unclear. It really depends on the political situation. Given the election in 2020, President Trump’s recent 2020 budget proposal suggested cleaving $800 million in spending from Medicare over the course of a decade. The budget proposal did not make clear whether it would cut costs and still find a way to close the coverage gap. Meanwhile, many presidential contenders have stated that they would like to find a compromise with the pharmaceutical industry, shifting the burden of Medicare costs onto the industry rather than the government.

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What can one do once they are in the donut hole or otherwise facing cash prices at the pharmacy counter?

There are still ways to discount your medicine while operating within the coverage gap. Some patient assistance programs, which you can read more about here, will offer discounts for Medicare Part D enrollees. The U.S. Prescription Discount Card, when used at a local pharmacy, may help obtain discounts beyond that of the 75% offered during the gap. Talk with your provider and don’t be afraid to do research before you purchase. If those options fail, then you can try accredited international online pharmacies.

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