The Medicare Donut Hole, which sounds nice but actually ends in catastrophic coverage, is a feature of Medicare Part D plans. Medicare Part D plans are prescription drug plans that cover drug-related costs not included in Parts A and B. If you have Medicare Advantage, the part D prescription drug portion is not included in the costs towards your out-of-pocket maximum. This means that regardless of whether or not you have a standalone part D plan or a Medicare Advantage plan, you are at risk of going into the donut hole.
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Medicare Part D costs
Before I can get into the donut hole, you have to understand the different payments that go into part D plans.
The first step is the Part D plan deductible. With a Part D plan, your maximum deductible is $445 in 2021. Many part D plans have no deductible, which is a great benefit if you know you will have at least some prescriptions in a given year. Once you have met your deductible, your Part D plan kicks in. This means the Part D plan will cover their responsibility for drugs. This varies by plan, but most of the time you will only pay your associated co-pay for your medications.
The Medicare Donut Hole explained
Once you get to a certain point of overall spending between you and your plan, you reach the donut hole. This point, called the initial coverage limit for Medicare Part D, in 2021 is $4,130.
Once you and your plan hit $4,130 of spending (not including copays, but including the deductible), you enter into the coverage gap AKA the “donut hole”. At this point, you take on more responsibility for the drug costs.
Medicare Donut Hole in 2021
In the Medicare Donut Hole in 2021, you will be responsible for 25% of the drug costs until you enter catastrophic coverage. Catastrophic coverage kicks in once the total out-of-pocket spent amount is $6,550. Once you reach this point, you only pay 5% of drug costs going forward.
Changes to the Medicare Donut hole in 2021
Well, it used to be way worse. In 2021, the Donut Hole has “closed” at 25%. Historically, this number has been closer to and even above 50% of drug costs. The percentages used to be different between generic and name brand drugs as well. Imagine the difficulty in keeping up with these numbers and trying to plan how much you will be spending in a given month.
What counts towards the total catastrophic coverage amount?
Anything besides premiums, non-covered drugs, out-of-network pharmacies and the amount your plan paid towards drugs. It is truly out-of-pocket costs from the beneficiary (you) that count towards the $6,550 total.
How do I keep up with the donut hole?
This is where you need to really push on your part D plan sponsor. They know all of this information and are tracking all of it, but don’t necessarily give you that information. The reality of the situation is that insurance is often delayed in reimbursements and won’t always have the up-to-date number. If you find yourself in the donut hole, call your insurance company and try to get the most accurate number you can for when you can get out.
Plan accordingly. The out-of-pocket total you will pay until catastrophic coverage is $6,550 in 2021. Work towards saving up for this amount if you expect to need it. Prescription drug coverage via a Part D plan will be comprised of the following expenses:
- The monthly premium
- Your deductible (if applicable)
- Your co-pay for drugs until the donut hole ($4,130)
- 25% of drug costs in the donut hole until $6,550 (catastrophic coverage)
- 5% of drug costs after you’ve hit “catastrophic coverage”
This can add up very quickly.
Need help with the Medicare Donut Hole?
If you have questions about your Part D plan and need advice, I am available to answer questions.