The Donut Hole is closing in 2020: what does that mean for you?

Published by Mike Lovell on May 31, 2019May 31, 2019

The Donut Hole is Closing in 2020

The donut hole is closing in 2020.  Many people think this means they will pay nothing for their medications if they reach the “donut hole”.  Closing the donut hole should lower costs for many people but it will NOT remove all of your costs.

Looking for a video with specifics to Medicare part D and the Donut Hole?

Prescription Drug Plan Coverage Stages

In every Part D/prescription drug plan there are 4 stages.

1. Deductible
2. Initial Coverage
3. Coverage Gap (donut hole)
4. Catastrophic Coverage

All plans start in this order but not every person will reach every stage in their plan.  Many people stay in step 1 or 2 all year long.  Around 5 million people nationwide reach the Coverage Gap, which is also known as the donut hole, each year.

Years ago when you reached the Coverage Gap, you were responsible for 100% of your costs.  Thankfully that is no longer the case.  But your medications also are not covered 100% because you are in the Coverage Gap.

Here is a quick overview of the 4 stages:

Deductible

The Deductible stage is what you first have to pay before the insurance company starts helping you cover the cost of your medications.  Many plans have options where you can get certain medications before you meet your deductible.

For example they may have generics listed in tiers 1 and 2.  And any medications in tiers 1 and 2 are covered immediately with a copay, even though you have not met your deductible yet.

But if you need a more expensive medication, then you may need to reach your deductible before the insurance company helps you cover those costs.

Initial Coverage

After you meet your deductible, you are in the Initial Coverage stage.  This means you have fixed copays or a percentage of the total cost of the medication you are responsible for.  And the insurance company covers the rest of the costs of that medication.

You stay in the Initial Coverage stage until your total costs of medications reach $3,820. (At least in 2019, this number changes from year to year.)

It’s important to note that the total costs does not mean YOUR total costs.  Instead it is the combination of costs paid by both you and the plan together.

Here is a quick example.

You are taking a tier 3 medication which is a $47 copay for you.  But the medication actually costs $250.  So the insurance company is paying $203 in addition to your $47.

Which means the total cost of the medication is $250.  This is the number used to calculate the total costs paid by both you and your plan.

And once the TOTAL costs of your medications add up to $3,820, at least in 2019, you fall into the coverage gap.

Coverage Gap

The Coverage Gap is also known as the donut hole.  Initially when you fell into the donut hole you were responsible for 100% of the costs.  Fortunately that is changing each year since 2011 and people like yourself face less of the financial burden.

In the coverage gap, you pay 25% of the costs for brand name medications.  The insurance company pays 5% of the costs.  And the manufacturer of the medication offers a 70% discount on the costs of the medication.

For 2019, you are responsible for a higher cost of the generics.  That cost is 37% but will be dropping to 25% in 2020.  Thankfully generics tend to be less expensive so even though your percentage of responsibility is higher, your total costs are often lower.

Payment responsibility in the Coverage Gap

2020

• You 25%
• Insurance company 5%
• Medication manufacturer 70%

This part gets confusing because to enter the Coverage Gap, we used the TOTAL costs of the medications.  But now that you are in the Coverage Gap, the costs used are YOUR costs.  You remain in the Coverage Gap until YOUR prescription costs add up to $5,100.

If you look back at our earlier example where your copay for the medication was $47 but the total cost was $250.  Well before the Coverage Gap, the number used is $250 since that is the total cost.  But now that you are in the Coverage Gap the number used is $47 because that is YOUR cost.

After you reach $5,100 in annual spending for prescriptions you leave the Coverage Gap and move to Catastrophic Coverage.

Catastrophic Coverage

Catastrophic Coverage is the last stage you can be in for Medicare prescription drug plans.  During this stage you pay the higher of 5% of the cost of the medication or a copay of:

• $3.40 for generics
• $8.50 for all other drugs

2020 Coverage Gap

In 2020 the Coverage Gap will increase from a total of your costs of $5,100 up to $6,350.

Most people would consider this is a LARGE increase.  I’m one of them.  It’s increasing more than normal due to some expirations of protections from the ACA or Affordable Care Act.

From 2014-2019 a certain method was used under the ACA rules.  After 2020, they will be going back to the calculation method from pre-ACA.  This means that the increase from 2019 to 2020 is larger than expected for future years.

DONUT HOLE IS CLOSING BUT DOESN’T MEAN ZERO COSTS

Yes, the donut hole is closing which is a good thing.  Compared to 10 years ago the financial burden on seniors has definitely dropped.  But it’s not like there are no costs involved.

Here is an example.

In the Initial Coverage payment stage, Mary’s insulin has a $47 copayment. Once she lands in the donut hole, she is responsible for 25% of the total cost of the medication. Because the full cost of the insulin is $475, she will pay $118.75.

That’s less than she paid in prior years in the Coverage Gap ($166) but still costly.  And still more expensive than she pays in the Initial Coverage level.

And for 2020 she will be in the Coverage Gap for longer because of the increase in her responsibility of costs increasing from $5,100 in 2019 to $6,350 in 2020.

Manufacturer Discount

Right now the manufacturer discount is included in the total costs to reaching the limit of the coverage gap.  This means that the 70% discount that manufacturers offer currently counts toward your maximum contribution of $5,100.

But the Trump Administration has proposed several changes to the part D benefit including removing the manufacturer discount charges. This means that seniors would remain in the coverage gap for longer and face higher out of pocket costs for their medications.

RECAP

The donut hole is closing in 2020 but that doesn’t mean you won’t have any costs for prescription medications if you reach the Coverage Gap.  Roughly 5 million seniors on Medicare did fall into the donut hole last year.

If you have LOW INCOME SUBSIDY/ LIS then you are not impacted by the donut hole the same way.

Whether your part D plan is a stand alone prescription drug plan or part of your Medicare Advantage plan, you need to estimate your prescription costs each year.  Since these costs can be so high it’s important to do a review during the Annual Enrollment Period which lasts from October 15^th to December 7^th each year with an independent agent that can help you shop the market and lower your costs.

Mike Lovell

608-571-4461

Mike@askMedicareMike.com