Hitting the Donut Hole
The donut hole, or coverage gap, is one of the most controversial parts of the Medicare Part D prescription drug benefit and of concern to many people who have joined a Part D drug plan. All Part D plan have the donut hole (coverage gap), as it is mandated by the Federal Government. It is slowly being closed, but will not be fully closed until 2020.
Although all prescription drug plans must explain the coverage gap in their literature and advertising, the donut hole comes as a shock to many enrollees when they go abruptly from making copayments for their drugs to paying 45% of the cost of Brand Names and 65% of the cost for Generics.
In addition, you may be confused about the $2,960 limit for 2015 in your initial coverage period, thinking it is only the amount of money you would have to pay out-of-pocket. In fact, the amount includes the total cost of your drugs, meaning what you paid plus what the drug plan paid.
How the Donut Hole Works in 2015
If you join a Medicare prescription drug plan, you may have to pay up to the first $320 of your drug costs. This is known as the Deductible.
During the initial coverage phase, your drug plan pays 75% of the covered prescription drug costs after your deductible is met, and you pay 25% until the total drug costs (including your deductible) reach $2,960.
Once you reach $2,960 in total drug costs, you will be in the donut hole and you must pay 45% of the cost of Brand Name medication and 65% of the cost of Generic drugs until your total out-of-pocket cost reaches $4,700. This annual out-of-pocket spending amount includes your yearly deductible and copay amounts.
When you spend more than $4,700 out-of-pocket, the coverage gap ends and your drug plan pays most of the costs of your covered drugs for the remainder of the year. You will be responsible for a copay of $2.65 for each generic drug and $6.60 brand name drugs (or 5%, whichever is higher). This is known as catastrophic coverage.