If you have Original Medicare with a separate outpatient prescription Part D drug plan (PDP), you may have noticed a positive impact on your pocketbook over the last few years, courtesy of the Affordable Care Act. The most significant change to Part D drug plans has been the gradual elimination 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, discounts and subsidies started to apply during the Donut Hole, and in 2020, the Donut Hole is effectively eliminated for consumers' purposes.
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:
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 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 $435 in 2020. In other words, until you spend $435 on medications, you have to pay 100% of the cost of your medications. Note that, depending upon the Part D drug plan, you may have no deductible at all; many plans have a low or no deductible.
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. Alternately, 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 $4,020 in 2020), your drug plan may pay less for your drugs. This means that you may be responsible for a bigger share of your drug costs while in this coverage gap, known as the donut hole. However, in 2020, you can only be responsible for paying up to 25% of the cost for covered brand name drugs or generic drugs, until you reach the other side of the coverage gap.
Some Part D drug plans may offer additional coverage for certain drugs while you are in the coverage gap. Be sure to check with your PDP to see if the drugs you are taking have lower copays while you are in the gap and whether there is an additional premium cost for this coverage.
Catastrophic Coverage. This coverage begins when you’ve reached a certain out-of-pocket threshold of total annual drug costs. In 2020, this amount is $6,350. 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 2020, you will be responsible for the greater of 5% of the drug costs or $3.40 for a generic drug or $8.50 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.