Starting in 2013, if you have Original Medicare with a separate outpatient prescription Part D drug plan (PDP), you will see changes that will have a positive impact on your health and pocketbook, courtesy of the Affordable Care Act passed by Congress and signed by President Obama in 2010. The most significant of these, however, is the gradual elimination of the “Donut Hole.”
Overview of the Donut Hole
When the Medicare Prescription Drug program was created in 2003, the law allowed for a coverage gap that has come to be called the “Donut Hole.” When you entered the Donut Hole, you became responsible for 100% of the cost of a covered drug until you spent enough on medications to reach the level of “Catastrophic Coverage.” At that point, your prescription drug plan would again share the cost of the covered drug. This coverage gap was a financial burden to many Medicare beneficiaries. After the passage of the Affordable Care Act in 2010, discounts and subsidies started to apply during the Donut Hole, which will eventually cause the Donut Hole to be eliminated by 2020.
Medicare Part-D Cost Sharing Basics
Under Part D, Medicare’s “standard benefit” package for Part D drug plans (PDPs) is based on the Medicare beneficiary (you) and the PDP sharing the cost of covered drugs. Your plan may choose to follow Medicare's standard benefit package or offer a different plan with different cost sharing structures.
Your actual drug plan costs will vary and depend upon many factors, including:
- your prescriptions and whether they’re on your plan’s formulary (covered drug list)
- which prescription drug plan you choose
- which pharmacy you use and whether it is a preferred, nonpreferred, out-of-network, or mail order pharmacy, and
- whether you get Extra Help, a Medicare subsidy program to assist you in paying your Part D costs.
You should review your PDP documents and call your Plan or Medicare for assistance in understanding the different prescription drug plans, costs, benefits, and features.
Part D Drug Plan Costs
Part D Premiums. Most plans charge a monthly Part D premium in addition to any Part B premium you are paying.
Yearly Deductible. This is the initial amount that you must pay for the cost of drugs until the Medicare prescription drug plan pays anything towards your drug costs. The maximum amount for a Part D deductible is $325 in 2013. In other words, until you spend $325 on medications, you have to pay 100% of the cost of your medications. Note that, depending upon the PDP, you may have no deductible at all.
Initial Coverage Period. After you have paid your plan’s yearly deductible amount (if you have one), you will pay a portion of your covered drug costs either through co-payments or co-insurance, depending upon your plan, and your insurance will pay the rest, until you meet the Initial Coverage limit.
A co-payment is usually a set amount, such as $10 for each prescription. The co-insurance is generally a percentage you pay, such as 25% of the drug, and the drug plan pays the other 75%. The cost sharing amount and how long this period last will vary depending upon many factors, including your plan’s benefit structure and your required out-of-pocket cost-sharing.
Coverage Gap. Once your total drug costs (the combined amount paid by you AND your plan) exceed a certain amount (the Initial Coverage threshold, which is $2,970 in 2013), there is a temporary limit on what your drug plan will pay for your drugs. This means that you will be responsible for a bigger share of your drug costs while in this coverage gap, known as the Donut Hole.
In 2013, while in the Donut Hole, you are responsible for paying for 47.5% of the PDP’s cost for covered brand name drugs (plus a dispensing fee) and 79% of the PDP’s cost for covered generics, until you reach the other side of the coverage gap.
Some PDPs may offer additional coverage for certain drugs while you are in the coverage gap. Be sure to check with your PDP to see if any of the drugs you are taking are covered while you are in the gap and whether there is an additional premium cost for this coverage.
The good news is that due to the Affordable Care Act passed in 2010, coverage of drugs while in the Donut Hole will increase gradually over the next several years, so that the share you are responsible for paying decreases. By 2020, when you will typically pay no more than 25% of the cost of your drugs at any point during the year after you've met your deductible, the Donut Hole will be eliminated.
Catastrophic Coverage. This coverage begins when you’ve reached a certain out-of-pocket threshold of total annual drug costs. In 2013, this amount is $4,750. Once you've spent this amount, you will have to pay only a small amount coinsurance or copayment amount for your medications for the rest of the year. In 2013, you will be responsible for the greater of 5% of the drug costs or $2.65 for a generic drug or $6.60 for a brand name drug.
The process of tracking your drug expenditures starts again at the beginning of each year.
Medicare beneficiaries are encouraged to look into Medicare’s “Extra Help” program, designed to help people with limited income and resources pay for Medicare prescription drug plan costs, such as premiums, deductibles, and coinsurance.
Go to the Social Security website for more information on the Extra Help program (http://www.ssa.gov/prescriptionhelp/) or the Medicare website (https://www.medicare.gov/your-medicare-costs/help-paying-costs/save-on-drug-costs/save-on-drug-costs.html). You may also be eligible for State Pharmaceutical Assistance Programs (http://www.medicare.gov/pharmaceutical-assistance-program/state-programs.aspx).
For more information about Medicare Part D plans, including finding a plan and comparing costs, go to the Medicare website’s Part D Plan area (https://www.medicare.gov/part-d/index.html) or call 800-Medicare. Then, call or visit the websites of the Medicare Part D Plans you are thinking about and request copies of enrollment materials and plan literature for review.