Changes to the Medicare “Donut Hole” in 2020

If you have Medicare coverage, you may have experienced the prescription coverage gap known as the “donut hole.” Good news: the “donut hole” has been closed.

If you know Medicare is in your not-too-distant future — or you hear the term “Medicare for all” equated with the concept of national healthcare — you might assume Medicare, by itself, includes prescription drug coverage. Unfortunately, that idea is inaccurate. “Medicare prescription drug coverage is an optional benefit offered to everyone who has Medicare,” according to the Medicare website.

The fact is, Medicare recipients must choose and pay for coverage for prescription drugs (other than those received while hospitalized, which are covered by Medicare Part A ) provided through private companies working in partnership with Medicare. The price and coverage can vary widely depending on the plan you choose. What’s more, many people who need multiple expensive prescription drugs have experience reaching a gap in coverage — the Medicare “donut hole” — resulting in higher medication costs.

Here’s what the “donut hole” has entailed for many years, often surprising people on Medicare when they “fell” into it.

If your drug costs hit several thousands of dollars (the exact amount dictated by Medicare has varied over the years), you ended up in a gap in coverage known as the “donut hole.” Then, until you spent even more and reached a “catastrophic” stage of prescription costs, you were stuck with paying a larger proportion of your drug costs.

However, there’s good news about changes to the Medicare “donut hole” in 2020. The “donut hole” has closed, and it may lower the overall cost of prescription drugs for many.

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Understanding Medicare Part D and the donut hole

There are several ways to get prescription drug coverage (https://www.medicare.gov/drug-coverage-part-d/how-to-get-prescription-drug-coverage) if you are a Medicare recipient. One option is to choose a Medicare Prescription Drug Plan (which adds drug coverage to original Medicare). Another option is to opt for a Medicare Advantage plan (known as Medicare Part C), which operates much like an HMO or PPO — they include all Medicare Part A (hospital coverage) and Part B (Medical insurance) coverage, as well as prescription drug coverage.

If Medicare prescription drug coverage is new to you, or you haven’t needed many prescription drugs under your Part D coverage, you may never have experienced the “donut hole” because you simply haven’t had enough medication expenditures.

So, to understand the “donut hole,” now known as the coverage gap, it’s important to understand the four stages of Medicare drug coverage and how and why the “donut hole” has been closed.

How changes to Medicare have closed the “donut hole”

The first stage in Medicare payments is the standard deductible applied toward prescription drug costs. In 2020, it’s $435. Depending on your specific Medicare drug coverage plan, you may be charged no deductible or any amount up to $435.

Once you or your drug plan has paid for $435 for medications, you reach the initial coverage stage. That means you and your plan pay 25 percent of the cost of your prescription drugs (usually, individuals pay a fixed copayment at this stage). After the total reaches $4,020, you move into the next stage, the coverage gap, previously known as the “donut hole.”.

Originally, falling into the “donut hole” meant you were responsible for 100 percent of your drug costs until you reached the next, catastrophic stage. When people could not afford their drugs in the coverage gap, and did not qualify for extra help, some stopped taking their needed medications, which could be deadly.

However, changes to the Medicare “donut hole” began when the Affordable Care Act (ACA) was passed and provided large discounts for drugs when people were stuck in the coverage gap, according to a report in Forbes. Specifically, in 2012, the discount was 50 percent for brand-name drugs and 14 percent for generics.

The discounts were increased every subsequent year until the changes resulted in the deep donut hole closing in 2020.

However, this doesn’t mean drugs are free. Instead, everyone will pay 25 percent of the cost of their medications in the coverage gap, just like in the initial coverage stage.

Then, if you spend $6,350 in out-of-pocket drug costs in 2020, you’ll move on move on to catastrophic Medicare drug coverage. Currently, unless you qualify for a low-income subsidy (LIS), the cost at this stage is a 5 percent insurance co-pay while your Medicare drug plan pays 15 percent and Medicare covers the remaining 80 percent of cost. Around 3.7 million Medicare beneficiaries will likely reach the catastrophic level this year, according to a report by healthcare consulting and research company Avalere.

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