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Medicare Part D: What's the Donut Hole?

Many people, especially those with Medicare, or those who are about to become Medicare eligible, have heard the term "donut hole' as it relates to Medicare. Well, what exactly is the donut hole? The donut hole is what Medicare refers to as a coverage gap. What this means is that you and your drug plan have reached a maximum limit on the amount of covered drugs. Let me better explain with an illustration:

Monthly Premium: You will pay this amount once per month for the year

Donut Chart

  1. Yearly Deductible: You will be responsible for the first $310 before the plan begins to pay.
  2. Copayment or Coinsurance: You and your plan share a cost each time you go to the pharmacy for your covered drugs until your combined amount reaches $2850 (including the deductible).
  3. Coverage Gap (Donut Hole): Once you and your plan reach $2850 for covered drugs, you fall into the coverage gap. At this point, you receive a 52.5% discount on brand name drugs and you pay 72% for generic drugs. The money that you pay, plus the 52.5% discount from the drug company on brand name drugs, will go toward out of pocket expense and help pull you out of the donut hole.
  4. Catastrophic Coverage: At the point where you have spent $4550 out of pocket for the year is when your coverage gap will end. You will now only be responsible for a small coinsurance payment for each covered drug until the end of the year.

As you can see, the coverage gap (donut hole), is not a very sweet place where you want to find yourself. However, not everyone will enter the coverage gap, and there are plans with additional coverage during the coverage gap. Likewise, these plans may come at a higher monthly premium. You will also need to check with that drug plan first to make sure that your drugs will be covered.

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