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.
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.
What is the Medicare Donut Hole?
This means that while enrollees are in the doughnut hole, the coverage gap can amount to thousands of dollars. In other words, while in the doughnut hole enrollees must pay 100% of the retail cost of their drugs until they have spent a set amount. Some PDPs offer minimal coverage on things like generic drugs while enrollees are in the doughnut hole, though these types of plans will usually charge a higher monthly premium. Once an enrollee reaches the total out-of-pocket limit during the coverage gap, they are bumped into "catastrophic coverage." Catastrophic coverage guarantees that once an enrollee has spent up to his or her plan’s out-of-pocket limit for covered prescriptions the person will only pay a nominal coinsurance fee or copayment for their drugs for the rest of the year. This works out to the enrollee paying about 5% of subsequent drug costs after the doughnut hole, their plan paying about 15%, and Medicare covering about 80%.
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 Part D Donut Hole – Prescription Drug Coverage Gap
Most Medicare Part D plans have a coverage gap, sometimes called the Medicare donut hole. This means that after you and your Medicare drug plan have spent a certain amount of money for covered prescription drugs, you then have to pay all costs out-of-pocket for the drugs, up to a certain limit. The yearly deductible, co-insurance, or co-payments, and what you pay while in the coverage gap, all count toward this out-of-pocket limit. The limit doesn’t include the drug plan’s premium.
What Is the Medicare Donut Hole?
Medicare introduced Part D in 2006. Under the initial rules, a senior who signed up with a PDP paid all drug costs until she met the plan’s deductible. After that, Medicare kicked in. The PDP paid 75 percent of covered drugs. The donut hole appeared if drug costs rose above an annual dollar limit. Above the limit, a senior paid 100 percent of prescription costs until she hit a second limit on out-of-pocket spending. Medicare then kicked in and typically paid 95 percent of drug costs. The limits rise over time, based on inflation.