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MEDICARE DONUT HOLE

Costs in the coverage gap

Most Medicare drug plans have a coverage gap (also called the “donut hole”). This means there’s a temporary limit on what the drug plan will cover for drugs.

Not everyone will enter the coverage gap. The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs. In 2018, once you and your plan have spent $3,750 on covered drugs, you’re in the coverage gap. This amount may change each year. Also, people with Medicare who get Extra Help paying Part D costs won’t enter the coverage gap.

 

Brand-name prescription drugs

Once you reach the coverage gap in 2018, you’ll pay no more than 35% of the plan’s cost for covered brand-name prescription drugs. You get these savings if you buy your prescriptions at a pharmacy or order them through the mail. Some plans may offer higher savings in the coverage gap. The discount will come off of the price that your plans has set with the pharmacy for that specific drug.

Although you’ll pay no more than 35% of the price for the brand-name drug in 2018, 85% of the price—what you pay plus the 50% manufacturer discount payment—will count as out-of-pocket costs which will help you get out of the coverage gap. These items aren’t counted toward your out-of-pocket spending:

  • What the drug plan pays toward the drug cost (15% of the price in 2018)
  • What the drug plan pays toward the dispensing fee (65% of the fee in 2018)

 

Example

In 2018, Mrs. Anderson reaches the coverage gap in her Medicare drug plan. She goes to her pharmacy to fill a prescription for a covered brand-name drug. The price for the drug is $60, and there’s a $2 dispensing fee that gets added to the cost. Mrs. Anderson pays 35% of the plan’s cost for the drug and dispensing fee ($62 x .35 = $21.70).

The amount Mrs. Anderson pays ($21.70) plus the manufacturer discount payment ($30.00) count as out-of-pocket spending. So, $51.70 counts as out-of-pocket spending and helps Mrs. Anderson get out of the coverage gap. The remaining $10.30, which is 15% of the drug cost and 65% of the dispensing fee paid by the drug plan, doesn’t count toward Mrs. Anderson’s out-of-pocket spending.

If you have a Medicare drug plan that already includes coverage in the gap, you may get a discount after your plan’s coverage has been applied to the drug’s price. The discount for brand-name drugs will apply to the remaining amount that you owe.

Generic drugs

In 2018, Medicare will pay 56% of the price for generic drugs during the coverage gap. You’ll pay the remaining 44% of the price. What you pay for generic drugs during the coverage gap will decrease each year until it reaches 25% in 2020. The coverage for generic drugs works differently from the discount for brand-name drugs. For generic drugs, only the amount you pay will count toward getting you out of the coverage gap.

 

Example

In 2018, Mr. Evans reaches the coverage gap in his Medicare drug plan. He goes to his pharmacy to fill a prescription for a covered generic drug. The price for the drug is $20, and there’s a $2 dispensing fee that gets added to the cost. Mr. Evans will pay 44% of the plan’s cost for the drug and dispensing fee ($22 x .44 = $9.68). The $9.68 he pays will be counted as out-of-pocket spending to help him get out of the coverage gap.

If you have a Medicare drug plan that already includes coverage in the gap, you may get a discount after your plan’s coverage has been applied to the drug’s price.

Items that count towards the coverage gap

  • Your yearly deductible, coinsurance, and copayments
  • The discount you get on brand-name drugs in the coverage gap
  • What you pay in the coverage gap

 

Items that don’t count towards the coverage gap

  • The drug plan premium
  • Pharmacy dispensing fee
  • What you pay for drugs that aren’t covered

 

Catastrophic coverage

Once you’ve spent $5,000 out-of-pocket in 2018, you’re out of the coverage gap. Once you get out of the coverage gap (Medicare prescription drug coverage), you automatically get “catastrophic coverage.” It assures you only pay a small coinsurance amount or copayment for covered drugs for the rest of the year.

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