What is the Prescription Drug “Donut Hole”?

August 6, 2018     About this blog:  click here

What is the Prescription Drug “Donut Hole”?

It has something to do with Medicare insurance for prescription drugs, but what is it?  And why is it?

It sounds sweet and tasty, but the reality is far different.  Unlike real donut holes, which are a solid  ball of dough, the Part D Donut Hole is a true hole – in coverage.

It’s a feature of Medicare Part D, which is coverage for prescription drugs you buy for yourself, such as at a pharmacy, or mail order, and take at home.

Medicare Part D is the one and only way that Medicare helps pay for these medications.  It is in the form of a policy that you buy from an insurance company.

The government gives the insurance company a monthly payment, of roughly $120.  You pay a premium to the insurance company on top of that.

The premiums vary from around $30 to $100 per month, depending on how much coverage you want to buy.  Higher premiums mean less or no annual deductible, and smaller co-pays.

Let’s talk about deductibles.   Most all health insurance policies have an Annual Deductible.  Let’s say, for example, your Annual Deductible is $500.

That means, starting Jan. 1, you have to pay all of your health care bills yourself, until you have paid out $500.  Then the insurance kicks in, and starts paying on your medical bills after that.

The insurance continues to work that way through the end of the year.  Then, next January 1, you have a new Annual Deductible to deal with.

Enter the Donut Hole

The Part D Donut Hole is a new invention, which never existed before in insurance.   It is sort of like a SECOND deductible, which occurs partway through the year.

Part D coverage works in three stages:

First Stage:  Starting January 1 of each year, you have an Annual Deductible to meet, just like any other health insurance policy (unless you pay a huge premium, for a policy without this deductible).

Second Stage is the dreaded Donut Hole:  If your total prescription drug expense for the reaches $3,750, then the Donut Hole kicks in:  Your insurance coverage stops paying anything, period.

The $3,750 number is the total of what you have paid out, plus what the insurance company has paid.

If your total drug expense stays below $3,750, then good news – you never fall into the Donut Hole.

If you do fall in the Donut Hole, your consolation prize is that the prescriptions you now buy out of  your pocketbook will have reduced prices:  65% off for brand name drugs, and 56% off for generics.

Third Stage: If you have a very large amount of drugs, which means more than $5,000 total expense through the year, then good news:  The coverage kicks in again — a second time — and keeps covering you through Dec. 31.   Then of course, on Jan. 1 it’s to time to face a new Annual Deductible.

Who falls in the Donut Hole?

As drug prices continue to rise very steeply, more and more people are falling into the Donut Hole, and many are falling into it earlier in the year than before.

Most people who do fall in, stay in it for the rest of the year.  In other words, their total expense doesn’t hit $5,000, and so the third stage –  of coverage resuming – never happens to them.

What can I do about the Donut Hole?

A very important thing to do is to look at the monthly reports that your Part D drug insurance company sends you.  The reports tell you the TOTAL expense for your drugs so far in the year (including what the policy paid).

It also tells you how many dollars away you are from falling into the Donut Hole.

If you are getting close, one thing you can do is to talk to your doctor(s) to see if they can switch any of your medications to less expensive drugs which serve the same purpose.

Why was the crazy Donut Hole invented in the first place?

It was created as part of Medicare Part D, in 2003.  The reason for its invention goes like this:

Congress was willing to spend money on this new benefit for drug expenses, but only a certain amount of money.

Congress also refused to let Medicare negotiate with the drug companies for lower prices, which would have saved a huge amount of expense.

And, Congress knew that the portion to be paid by Medicare recipients – that is, the monthly premiums to insurance companies – could not be too high, or else not as many people would buy it.

So, something had to give, in order to make the dollar amount work out to the amount that Congress was willing to spend.

That’s when some genius came up with the idea of the Donut Hole.  In essence, it makes people who have above-average drug expense pay a lot more out of pocket, while everyone else can enjoy affordable premiums.

That means:  If you don’t need many drugs, you’re treated better.  If you do need more drugs – or more expensive ones – tough luck, you have to shell out quite a lot more.

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Comments

  1. Diane J. Peterson says:

    In the August issue of The Voice, readers were instructed to come to the blog to find out the difference between Medicare Supplement and Medicare Advantage. However, there is nothing labeled with those terms in this blog, so I cannot find it. Perhaps you should label a column with that so people can easily find it.

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