The Part D coverage gap – or “donut hole” – is a payment stage with Medicare prescription drug plans and a big budget concern for many people. It’s a period of time when the main cost burden for prescription drugs shifts from the plan to the plan member.
It might help to think of the coverage gap as a “portage.” Canoers portage, or carry, their boat and gear from one body of water to another when paddling between the two is not possible. In a similar way, Part D plan members must carry the cost of their drugs in between periods when their plan provides coverage.
The good news is that the Part D “portage” is shorter and easier since the Affordable Care Act went into effect in 2010. The cost burden for plan members in the coverage gap has lessened each year. Costs will level off by 2020 and the gap as we know it will become history. Alas, for all you canoers, portages are forever!
Understanding Part D Payment Stages
The Part D coverage gap is one of four payment stages with Medicare prescription drug plans. The payment stage you’re in determines the amount you pay when you fill a prescription. You begin each year in the deductible stage or the initial coverage stage, depending on your plan. Most people never enter the coverage gap.
- Deductible stage: You pay the entire cost for prescriptions you fill until you reach the deductible amount set by your plan. Usually your cost is a discounted price that your plan has negotiated. Not all Part D plans have a deductible.
- Initial coverage stage: You pay copays or coinsurance for prescriptions you fill. Your plan pays the rest. You may be in this stage starting with the first prescription you fill if your Part D plan does not have a deductible. You stay in this stage until you and your plan have paid up to a limit set by Medicare.
- Coverage gap stage: You pay a set percentage of the discounted cost for prescriptions you fill, up to a limit. The percentage you pay and the limit are decided by Medicare. Drug manufacturers provide a 50% discount on medications dispensed in this stage.
- Catastrophic coverage stage: You pay reduced copays or coinsurance for prescriptions you fill. You stay in this stage until a new plan year begins. Then the cycle starts over.
In and Out of the Coverage Gap
Each Part D payment stage has a dollar limit that marks when you exit that stage and enter the next. You move through the Part D payment stages based on how much is spent on your drugs through the year.
Your out-of-pocket drug costs, including copays, coinsurance amounts and your deductible, if any, count toward the dollar limits. Other amounts that contribute to reaching the limits include:
- What your plan pays for your drugs in the initial coverage stage
- Discounts provided by drug manufacturers in the coverage gap stage
- Amounts paid by others on your behalf, such as financial assistance programs, in any payment stage
The payment stages, their dollar limits and what counts towards reaching the limits are summarized in the table. The numbers come from Medicare. It’s important to note that Part D plan premiums do not count toward payment stage limits.
|Payment stage||What you pay in 2018||Limit in 2018||What counts toward the limit|
|1. Deductible||100% of the cost for prescriptions you fill||$405 or less|| Amount you and others on your behalf pay for prescriptions filled in this stage|
|2. Initial Coverage||Your plan’s copay or coinsurance amount for each prescription you fill||$3,750|| Any amount paid in the deductible stage Amount you and others on your behalf pay for prescriptions filled in this stage
What your plan pays for your drugs in this stage
|3. Coverage Gap||Set percentage of the cost:44% for generic
35% for brand-name
(Percentages will go down each year until they level off at 25% in 2020.)
|$7,508.75|| Any amount paid in the deductible stage Amount you and others on your behalf paid in the initial coverage stage (not what your plan paid)
Amount you and others on your behalf pay for prescriptions filled in this stage
Manufacturer’s discount amount for brand-name prescriptions you fill in this stage
|4. Catastrophic Coverage||Reduced copay:$3.35 for generic
$8.35 for brand-name
Or 5% of the cost, whichever is more
|No limit|| Final payment stage Continues for rest of plan year|
Tips for Navigating the Coverage Gap
It’s best to avoid the coverage gap all together if you can. Going back to the canoe story, it’s a lot easier to paddle than it is to portage. And when you have to portage you do it efficiently so you can get back in your boat as soon as possible. Likewise, people who reach the coverage gap need to get through it wisely so they can get the most from their Part D coverage.
Drug costs can take a bite out of your budget. Here are some ideas to help turn that bite into a nibble, even if you are unlikely to reach the coverage gap.
Plan ahead. Get an estimate of: 1) what your yearly drug costs might be with your Part D plan, 2) if and when you might reach the coverage gap and 3) when you’d exit the gap. Your out-of-pocket drug costs are reduced once you’re out of the gap and in the catastrophic coverage stage. “Catastrophic” makes it sound scary, but this payment stage provides protection from high annual drug costs. It’s important to understand your current situation.
Explore your plan choices. You can get drug coverage through a stand-alone Part D plan or a Medicare Advantage plan (Part C) that includes drug coverage. Your costs may vary based on the plan you choose and the drugs you take. Medicare’s Plan Finder can help you compare the different plans offered where you live, including your current plan. You’ll get an estimate of your drug costs with each plan – if you enter your drug information – as well as other useful information. You may change your plan during the annual Medicare Open Enrollment, Oct. 15 – Dec. 7, if you choose to.
Talk to your doctor. You may have options for using generic or low-cost drugs rather than brand-name or high-price drugs. For some, this could be the difference between reaching the coverage gap and avoiding it. It depends on your plan and which drugs you take. Be sure to ask your doctor about this and other ways to lower your drug costs. If you enter the coverage gap, your doctor may help you find ways to get through quickly. Your costs will be much lower once you reach the catastrophic payment stage.
Track your drug costs. Your plan sends you a statement each month that gives you important information. It’s called an Explanation of Benefits. This statement lists the prescriptions you filled that month with details about what you paid, what your plan paid and any other payments on your behalf from programs or organizations. The statement also provides year-to-date facts about: 1) your deductible, 2) your out-of-pocket costs, 3) what your plan and others have paid, 4) what payment stage you are in, and 5) the amount left before you move to the next payment stage. Keeping track of where you are and what lies ahead can help you manage your drug costs and, if you get there, navigate the coverage gap.
Ask for help. There are programs and organizations that may be able to help if you can’t afford your medications, no matter what payment stage you’re in. Usually you need to qualify based on your income and other financial resources. It’s worth looking into, even if you think you won’t qualify.
The Bottom Line
The Part D coverage gap will be with us until 2020. You may have to carry a large share of your drug costs through the gap a few more times. Hopefully, the information and tips in this article will help lighten your load.
Content provided by Medicare Made Clear