In 2006, the first year of operation for Medicare Part D, the donut hole in the defined standard benefit covered a range in true out-of-pocket expenses (TrOOP) costs from $750 to $3,600. (The first $750 of TrOOP comes from a $250 deductible phase, and $500 in the initial coverage limit, in which the Centers for Medicare and Medicaid Services (CMS) covers 75 percent of the next $2,000.) In the first year of operation, there was a substantial reduction in out-of-pocket costs and a moderate increase in medication utilization among Medicare beneficiaries, although there was no evidence of improvement in emergency department use, hospitalizations, or preference-based health utility for those eligible for Part D.
NCPSSM > Medicare > Closing the Donut Hole
The standard Medicare Part D drug benefit contains a “donut hole,” a coverage gap where beneficiaries are required to pay for their medications even while they continue to pay premiums. In 2015, under the standard Part D benefit, beneficiaries enter the donut hole when their out-of-pocket spending — not including premiums — totals $740.00 at some point during the year (or total beneficiary and plan spending of $2,960). Once total out of-pocket spending reaches $4,700, the coverage gap ends and beneficiaries pay either five percent of total drug costs or $2.65 for each generic drug and $6.60 for each brand-name drug.
Understanding the Medicare Part D Donut Hole
Once you and your Part D drug plan have spent $2,840 for covered drugs, you will be in the donut hole. Previously, you had to pay the full cost of your prescription drugs while in the donut hole. However, in 2011, you get a 50% discount on covered brand-name prescription medications. The donut hole continues until your total out-of-pocket cost reaches $4,550. This annual out-of-pocket spending amount includes your yearly deductible, copayment, and coinsurance amounts.
Medicare Doughnut Hole Definition
A range of total prescription drug spending in the Medicare Part D program where all of the costs must be covered out-of-pocket. As a result of the Medicare doughnut hole, Medicare Part D participants are forced to choose between paying higher insurance premiums, or potentially paying thousands of dollars out-of-pocket to bridge the coverage gap. Many lower-income participants in Medicare are unable to afford either option.
Medicare Prescription Drug Coverage Guide: Doughnut Hole Coverage Gap
While in the gap, in 2015 you pay 45 percent of the cost of brand-name drugs and 65 percent of generic drugs. (Fifty percent of the discount on brand-name drugs is paid by the companies that manufacture them, and the rest by the federal government. The discount on generic drugs is wholly paid by the federal government.) In subsequent years, these costs will reduce until, by 2020, you pay no more than 25 percent of the cost of any drug in the gap.