What is the Donut Hole?

In practice, this means that after an individual and their drug plan have spent a certain amount of money for covered drugs, the enrollee must pay all subsequent drug costs at retail rate out-of-pocket up to a yearly limit. A person's yearly deductible, coinsurance/copayments, and what a person pays while in the coverage gap all count toward this out-of-pocket yearly limit. The limit doesn't include premiums paid monthly or what a person pays for drugs that aren't covered by the drug plan.

 

How costly can the coverage gap be?

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%.

 

Will the Donut Hole be eliminated and when?

As a result of the Protection and Affordability Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010, the doughnut hole will close by 2020. This reform was deemed necessary given the fact that in 2007 an estimated 3.4 million Medicare Part D enrollees fell into the doughnut hole and the coverage gap – now at $3,610 – was projected to exceed $6000 by 2020. This year, Medicare Part D enrollees who get into the doughnut hole will be credited a one-time rebate of $250, except those who receive the low-income subsidy.

 

After that starting in 2011, the doughnut hole will shrink through Medicare Part D enrollee, Medicare, and drug manufacturer contributions so that by 2020 enrollees will be responsible for only 25% of their drug costs in the coverage gap. Also in 2011 brand-name drug companies will be forced to provide a 50% discount on these prescriptions to enrollees in the doughnut hole and beginning in 2013 Medicare will start providing an additional discount on brand-name drugs up to 25% in 2020. As a result, by 2020 the combination of 25% enrollee, 25% Medicare, and 50% drug manufacturer contribution will effectively close the doughnut hole.

 

With regard to generic drugs, in 2011 Medicare will begin providing discounts on generic drugs increasing annually to 75% by 2020.