What is the Medicare donut hole?

The Medicare donut hole is the coverage gap that is within the majority of Medicare Prescription Drug Plans. There is a short-lived restriction on what drugs most plans will cover. The coverage gap does not apply to everyone. It starts after you and your drug plan spend a specific amount purchasing covered medications.

For the year 2016, you are in the coverage gap when you and your plan have spent $3,301 on covered medications. This figure is subject to change every year. In addition, those who have Medicare, and who receive additional assistance with payment of Part D costs will not be included in the coverage gap.

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Upon reaching the coverage gap in 2016, you will pay a maximum of 45 percent of the plan’s cost for brand-name prescription drugs that are covered. You will get these savings if you purchase your prescription drugs at a pharmacy or place an order by mail. Even though you will pay a maximum of 45 percent of the price for the brand-name prescription in 2016, 95 percent of the price will be considered out-of-pocket cost that will help you leave the coverage gap.

This figure represents the 45 percent that you pay plus the 50 percent manufacturer discount payment. Your out-of-pocket costs do not include the amount the drug plan contributes toward the cost of the drug, or 5 percent, and the amount the drug plan contributes toward the dispensing fee, or 55 percent of the fee.

In 2016, Medicare will pay 42 percent of the cost of generic drugs during the coverage gap. You will pay the remainder, or 58 percent of the cost. The amount you pay for generic drugs during the coverage gap will be reduced every year until it is 25 percent in 2020. The coverage for generic drugs operates in a different manner from the way in which the discount for brand-name drugs works. With respect to generic drugs, only the amount you pay will be applied toward helping you out of the coverage gap.

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