Twin City Underwriters

What is the Medicare Donut Hole?

July 7, 2021 | Kari Mellone

What is the donut hole? Will it affect me? When will that happen and how long does it last?

You may have heard the phrase “Donut Hole” when it comes to Medicare. Unfortunately, this isn’t referring to a sweet treat. Most Medicare drug plans (either stand alone or embedded with your health plan) will have a Donut Hole, or a gap in coverage.

Medicare regulates and sets the dollar amounts you will spend before you enter the Donut Hole – and what your cost sharing will be once you reach the Donut Hole. Medicare also sets the limit of your out-of-pocket cost while in the coverage gap – before moving into catastrophic coverage. These dollar amounts change each year.

Not everyone will enter the coverage gap or donut hole.

There are four stages in a standard Medicare Part D drug plan:

Stage 1

  • DEDUCTIBLE – You pay 100% of drug costs
    • The amount you pay out of pocket before your plan begins to pay.
    • Some plans may exclude the deductible on certain tiers of medications, which can be beneficial. However, not all plans exclude the deductible.

Stage 2

  • INITIAL COVERAGE – You share the cost with your Insurance Part D plan
    • Copays (fixed flat amounts)
    • Coinsurance (percentage of the drug’s retail cost)

Stage 3

  • COVERAGE GAP – DONUT HOLE (not everyone enters this stage)
    • When the shared retail cost between you and the insurance company reaches $4,130 (this is the set amount for 2021), you move into the Donut Hole. This is also known as the Coverage Gap.
    • Cost for prescriptions change: In 2021, you will pay a maximum of 25% for brand name drugs, and 25% for generic drugs. (This is based on the retail cost)
    • Cost sharing continues until YOUR out-of-pocket costs reach the $6,550 limit (the set amount for 2021). Once you reach $6,550 out of pocket, you move out of the Coverage Gap to the fourth and final stage. This is known as catastrophic coverage.

Stage 4

  • CATASTROPHIC COVERAGE
    • When you have spent $6,550 (in 2021) out of pocket, you move into catastrophic coverage.
    • Your $6,550 out of pocket includes the following: deductible, copayments and coinsurance, and what you pay while in the coverage gap. It does NOT include your plan’s premium, over the counter drugs or drugs that are not on your plan’s formulary. It also doesn’t cover drugs you get through a formulary exception.
    • Cost of your medications change to fixed copay amounts. In 2021 you will pay the greater of: 5% of the cost or a $3.70 copay for generic medications.
    • You continue to pay this amount for the rest of the calendar year – then it starts all over again.

If you have any questions on how the Donut Hole may impact your Medicare Part D plan or medication costs, our team is here to help you – reach out to us today.

Do you need help with Medicare, insurance and health plans? Explore your options with Allina Health Aetna, Blue Cross/Blue Shield of Minnesota, Medica and UCare. We work with you to find the best plan for your needs and budget. Contact us today to get started.