In this article, we discuss the ‘Donut hole’ and we answer additional questions about how to avoid it. Medicare and the Medicare Part D supplemental insurance plans are vital to protecting yourself.
The Background of Medicare
The goal of Medicare is to spread the cost of healthcare, especially in later life (65+), across the lifetime of the individual, the population as a whole through taxation, and by payment, according to the services demanded. Depending on your state, you may receive insurance subsidies or free access to some essential services.
You can’t do much about taxes, whether payroll or income, but you can choose your personal approach to paying for the services and medication you need, but are NOT covered by Medicare (Parts A&B).
The Donut Hole – What is it?
Medicare Part D defines and underwrites the medications and drugs prescribed under the program.
The Act also defines your annual financial spending limits.
The largest and fastest-growing element of healthcare costs is Prescription Drug coverage.
To understand the Donut Hole, you have to look at your (anticipated) annual expenditure on ‘prescription drugs and medication’
There are 4 elements,
- ‘The Deductible element’. The amount you pay before your insurance starts to contribute
- ‘The initial coverage element’. Your share with your insurers of the amount spent on prescription drugs. Your choice of plan will determine the balance between co-pays and co-insurance.
The limit of the initial coverage, for 2020 is $4020.
- This ($4020) defines the ‘donut hole’. You would be responsible for 25% (2020) of all your prescription drugs and medication costs up an out of pocket expense limit of $6350.
- If you (Or one of your dependents) exceed the limit, you can plan on a significantly lower co-payment or co-insurance for the remaining plan period. The catastrophic element.
What Does This Mean To Me?
The first two elements are a matter of judgment. You can choose the (Medicare-approved) plan (plans) which best meets your anticipated prescription drugs need. Check your historic prescription drug usage and consult your doctor if you anticipate changes in the foreseeable future. Remember the $4020 limit refers to the amount that you and your insurer pay for your prescriptions including your deductibles. Your monthly premium payments do not count towards your initial coverage limit.
In 2020 if you ‘spend’ more than $335 per month on prescription drugs you will reach the ‘donut hole’!
For 2020 the dreaded donut hole is not as significant as it has been in the past, but you should be aware that if your expenditure on prescription drugs exceeds $4,020 you will be responsible for 25% of your expenditure on prescription drugs.
Of course, you can choose between generic or brand name drugs.
- You will pay 25% of the retail price
- The amount you pay (25%) will count towards your total drugs spend (TrOOP)
- You will pay 25% of the retail price You will receive a 70% discount from the manufacturer and a 5% contribution from Medicare. The amount you pay (25%) + the manufacturers discount (70%) will count towards your total drugs spend
Note: Branded drugs can be up to 3x more expensive. You should review with your doctor whether there are multi-source (generic) drugs that would be as effective as the branded equivalent.
- The ‘donut hole’ continues to exist as an element in Medicare insurance plans to ensure that MMC has a band of flexibility to meet future contingencies.
For example, the TrOOP limits, and/or the manufacturer discounts may change
For 2020 the upper limit is $6,350 out of pocket expense (TrOOP) which means that the face value of your prescription drugs would be approximately $25,000 in one year.
In practice, only a small proportion of the population reaches these limits. These exceptional circumstances are covered by ‘the catastrophic element’.
IF you or one of your dependents enter the catastrophic coverage stage of your Medicare Plan D your choices are relatively straightforward.
Generic or multi-source drugs
- $3.60 or 5% of retail whichever is greater
- $8.95 or 5% of retail whichever is greater
Remember, your Medicare plan is an annual plan and coverage begins again on January 1st.
Can I Avoid The Donut Hole?
Don’t tempt fate. The only way to avoid the ‘donut’ is by not reaching the individual coverage limit of $4,020.
The question is really,
“How can I make the most of the amount I on spend on prescription drugs?”
Here are some tips: –
- Generic alternatives are available for most branded drugs. They are almost always less expensive their branded equivalent.
- Generic drugs are required by the FDA to have the same essential ingredients as the brand-name equivalent
- To be administered in the same way and at the same dosage
- To be proven to have the same effect
Not all drugs can be prescribed in large quantities. For those that can,
- Order in advance by mail (check first with your insurer)
- Order a ninety-day supply (some pharmacies will give you similar terms)
If there is no generic alternative check on-line. Some manufacturers will supply direct, at a discount.
Check to see if there is a Medicare (Extra Help) program that can help with Medicare Part D costs.
Finally, Take the opportunity to consider alternative plans. Most exchanges can offer plans for you to compare.
TrueCoverage offers the widest selection and puts customized plans at your fingertips in moments.
Invest a few minutes now, you could avoid the Donut Hole and save $ thousands. Make your insurance plans work for you!