What is the Medicare Donut Hole?
The term donut hole is a metaphoric reference to the coverage gap in drug costs for Medicare recipients.
The four stages of this yearly cycle are:
- Stage 1: Yearly deductible
- Stage 2: Initial coverage
- Stage 3: Coverage gap (donut hole)
- Stage 4: Catastrophic coverage
Understanding what costs are applied during the different stages of the yearly Medicare cycle of drug coverage is paramount in lowering out-of-pocket costs. Medicare drug plans mask the true cost of medications behind copays.
Once in the donut hole, standard copays are no longer relative and you become responsible for 25% of the retail cost of drugs whether they are generic or brand name.
For example: If your drug costs $425 per month at retail prices, it can land you in the donut hole after the 10th month of the year. The donut hole for 2020 begins at $4,200. Ten months of a $425 retail drug adds up to $4,250, so you’ll be in the donut hole for November and December and the drug will cost more than $100 per month. Medicare drug stages reset yearly on January 1.
How to avoid the donut hole
Take these steps to slow or avoid your approach to the donut hole each year.
- Switch a brand-name for a generic drug: Your doctors and pharmacists can give you information on which brand-name drugs are available as generics, which can offer substantial savings. Always check with your prescribing doctor before switching prescription medications.
- Samples: At every appointment and with every doctor, ask for samples of any drugs you have been prescribed. Many drug manufacturers provide doctors with a limited quantity of various drugs to promote their product. The doctor decides how much of the drug to give and to which patients, while supplies last. These samples can create substantial savings, and they are not counted toward your initial coverage limit.
- The Plan Finder tool: This handy tool can help you find accurate information on the cost of drugs and determine which plan and pharmacy are the most cost-effective for you. After filling in some confidential personal information, it will direct you to an important page of resources. Here you will find information on prescription drug assistance programs, pharmaceutical company discounts, community-based programs, and nonprofit and retail drug discount cards available in your area.
- Qualify for Part D (LIS) also known as Extra Help: Extra Help is a federal program that helps pay for some to most of the out-of-pocket costs of Medicare prescription drug coverage. If your annual income is up to $19,320 in 2022 ($26,130 for couples) and your assets are below specified limits, you may be eligible for Extra Help. Those who are enrolled in a Medicare Savings Program (MSP), Medicare and Medicaid, or are on Supplemental Security Income (SSI) automatically qualify for Extra Help.
- Use two pharmacies: Using two pharmacies may seem a bit inconvenient, but this strategy can be extremely cost-effective. Many pharmacies, including those located in grocery stores, offer a list of generic drugs for a low cash price, usually $4 or $5 per prescription. If you pay this cash price, your Medicare coverage doesn’t come into play and your prescription is not added to calculations that take you closer to the donut hole.
Purchase your generic drugs and pay the cash price at a pharmacy that does not have your insurance information. Then, purchase your brand-name drugs at another pharmacy and pay the insurance copay amount. This strategy will reduce your out-of-pocket in Stage 2 and often keep you from falling in the Stage 3 donut hole.
It’s key to use a pharmacy that does not have your insurance information. If a pharmacy has your insurance information, the accounting department will apply your insurance coverage on record to acquire reimbursement – even for cash purchases. This will add the retail drug cost to the total used in calculating your stage 2 $4,200 limit, placing you in the donut hole and nullifying this important strategy.
- Use prescription assistance programs: These programs have helped millions of people slash their drug expenses. They are free to use and work with your existing prescriptions to produce substantial savings. Several have an app for your phone or tablet that will enable you to use them on the go. Some popular Prescription Assistance Programs include:
- Use preferred pharmacies: Most Prescription Drug Plans (PDPs) have preferred pharmacies where you’ll receive a lower price for using their services. Also, check out the mail order program offered by your plan as it’s often the least expensive option.
- Use in-pharmacy coupons: For the more expensive drugs, your pharmacist will often have a coupon program that will give you a lower price than your insurance copay.