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What is the “doughnut hole” in Medicare drug coverage?

The “doughnut hole” in Medicare drug coverage is the gap in coverage that occurs after your plan stops paying for your drugs and before you reach the benchmark required for catastrophic coverage ($4,550 in 2011). While you are in the doughnut hole you are responsible for paying 100 percent of the cost of your medication.  
The Affordable Care Act created a Medicare Coverage Gap Discount Program to help people pay for their medication while they are in the doughnut hole. To qualify for the Medicare Coverage Gap Discount Program you must
  • be enrolled in the Medicare Prescription Drug Plan or a Medicare Advantage plan that includes prescription drug coverage
  • NOT receive Extra Help, a Medicare and Social Security program that helps Medicare beneficiaries with limited incomes and resources pay for their prescription drugs
  • have reached the gap in coverage (“doughnut hole”) that qualifies you for the discount
If you qualified in 2010, you may have already received a one-time, tax-free rebate of $250 from Medicare when you entered the doughnut hole. And in 2011, the Act provides for a 50 percent discount on brand-name prescription drugs and 7 percent discount on generics for relief of your out-of-pocket expenses while you are in the doughnut hole. 
The percentage discount you receive will continue to increase each year until 2020, when you will be responsible for paying 25 percent for covered brand-name and generic drugs while you are in the doughnut hole and until you reach the out-of-pocket spending limit ($4,550 in 2011). Check your Explanation of Benefits (EOB) statement on a regular basis to see how much you have spent on covered prescription drugs and to help you determine when you entered the doughnut hole and can expect to receive discounts on your covered medications. 
Be aware that prescription drug coverage under Medicare can be affected by other factors, such as other insurance coverage or assistance, including but not limited to state aid or other discount drug programs, and whether the company that makes your drug has agreed to participate in the Act’s discount drug program.
Dr. Michael Roizen, MD
Internal Medicine

The donut hole in Medicare drug coverage refers to the gap in coverage that most Medicare recipients experience if they have a drug plan. Although it sounds a bit appetizing, ala Krispy Kreme or Dunkin’ Donuts, it can be as bad for your health as donuts -- and this donut hole definitely leaves a sour taste in your mouth.

Here’s what happens: as a part of your drug plan, you pay a yearly deductible, coinsurance or a co-payment, and whatever the prescriptions cost. Your plan covers the rest of the cost of the drugs. However, there is a limit. Once you and your plan have paid a certain amount of money for covered drugs, you will have to start paying the total cost of the drugs out of pocket.

You’ll know if you’ve fallen into the donut hole when you examine (yes you may need a PhD in decoding) your Explanation of Benefits (EOB) statements. Each month, your Medicare drug plan mails an EOB detailing how much you’ve spent on covered drugs and any gaps in coverage.

Luckily, the Affordable Care Act has created some provisions to minimize these coverage gaps. Starting in 2011, if you hit your limit, you will receive a 50% discount on covered brand name drugs and a 7% discount on covered generic drugs. Each year between 2011 and 2020, there will be additional savings so that donut hole is completely sealed by 2020.

For more information on the donut hole, contact your prescription drug plan, or Medicare at 1-800-633-4227 or www.medicare.gov.

You can choose to buy Part D prescription drug coverage from Medicare-approved insurance companies. Under current law, each year you pay your monthly premiums and a deductible and then a co-pay of about 25 percent for each prescription drug.
For 2010, if your total drug costs exceed $2,830, you fall into the coverage gap, or the so-called doughnut hole. Your total drug costs include what you and your plan have paid during the year.
During this gap in coverage, you continue to pay your premiums. You also pay the full price for your drugs until your out-of-pocket costs are high enough that you qualify for what is called catastrophic coverage ($4,550 in 2010).
After that point, you are responsible for only 5 percent of your prescription drug costs for the rest of the year. The new health care law gradually narrows the doughnut hole until it disappears in 2020.

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Important: This content reflects information from various individuals and organizations and may offer alternative or opposing points of view. It should not be used for medical advice, diagnosis or treatment. As always, you should consult with your healthcare provider about your specific health needs.