What is this “donut hole” I keep hearing about? I will have to pay what for my medications on Medicare?
If you have asked these questions, you are either on Medicare or looking to start your Medicare journey. A common misconception about Medicare is that all of your medical services are covered with zero expense, with that, all your medications will be covered at zero expense. THIS IS NOT TRUE! In addition to your Part D drug plan premium, you may have to pay a co-pay when you pick up your medications at the pharmacy or through a mail order service. Even if you have a Medicare Advantage plan that may have no monthly drug plan premium; you may have to pay a drug co-pay when you pick up your medications at the pharmacy or when you order them through a mail order service.
There are four stages to drug coverage that Medicare beneficiaries may go through:
The first stage is the deductible stage. This stage may or may not apply depending on the drug plan you are on, along with the medications you are taking. If you have a deductible that applies to your plan, you will have to satisfy that deductible before the plan starts to pay a portion of your medication costs. The Centers for Medicare and Medicaid Services (CMS) determines the Part D deductible every year. An important thing to note: Medicare Advantage plans may or may not have a deductible depending on the plan.
The second stage is the initial coverage stage. In this stage you will have co-payments in addition to your plan premium, if you have one. Once you and the insurance company pay a certain amount for all your medications (set by CMS), including the deductible, you will move onto the next stage.
After reaching the limit that you and the insurance company pays for your medications in the initial coverage stage, you will enter the coverage gap stage. This is also known as the “donut hole.” In the donut hole, you will pay 25% of retail cost for your all your medications that you are taking. You will pay this percentage until another standardized dollar amount (set by CMS) is met. It is important that each year your review you drug plan coverage to understand if or when you will hit the coverage gap stage. Knowing this will help you plan on how to deal with the coverage gap stage when you hit it.
Once you hit the limit (set by CMS) that you and the insurance company pay in the coverage gap aka “donut hole” stage, you will hit the catastrophic coverage stage. In this final stage you will pay a small co-insurance or co-pay for each covered drug until the year ends. In most cases you will pay no more than 5% of the cost of the coverage medications for the rest of the year.
The coverage stages start over each year and the dollar amount limit can and will change each year. If you can’t afford your medications or you are a low-income individual, you may have access to extra help programs to help pay for your medication costs.
If you don’t enroll in a prescription drug plan or have credible coverage drug coverage when you are first eligible for Medicare, you may start accruing a part D penalty. It is important each year that you talk with a licensed insurance professional each year to understand how these changes will affect you situation.