The infamous Medicare coverage gap (or donut hole) is officially closing in 2020, meaning you won’t pay more than 25% on prescription drugs during that time. However, you may still end up paying more out of pocket.
What is the Medicare donut hole?
As part of the Affordable Care Act (ACA), also known as Obamacare, the Medicare donut hole is closing in 2020 to make prescription drugs more affordable for Medicare beneficiaries. The donut hole was previously a period of coverage in which your drug plan paid very little toward your drug costs, or sometimes nothing at all. The amount beneficiaries pay at the pharmacy counter during this benefit period have been gradually decreasing for years. In 2020, you’ll pay no more than 25% coinsurance for both brand-name and generic drugs.
What is changing about the donut hole in 2020?
As of 2020, you will pay no more than 25 percent coinsurance for your brand-name or generic drugs while you’re in the donut hole. However, the amount you must pay to exit the donut hole is increasing to $6,350, a 25% increase from $5,100 in 2019. While the typical coinsurance rate of drugs in the donut hole is dropping, the amount of money you must spend to exit the donut hole has grown considerably, leaving many Medicare beneficiaries paying even more.
Payments to get you out of the donut hole include:
- Your deductible,
- What you paid during the initial coverage period,
- Any discounts paid by your drug manufacturer, and
- Amounts paid by others on your behalf.
Although the closing of the donut hole will benefit many Medicare enrollees, it may hurt people who take many or very expensive prescription drugs. If you have a copay for your drugs in your initial coverage period, your costs may increase once you reach the donut hole and pay a coinsurance, or percentage of the drug’s list price.
For example, you may pay a $10 copay for your drugs during the initial coverage period. However, if the list price of your prescription is $300 and you reach the donut hole, the drug will cost 25% of the list price, or $75 in this case.
Part D coverage periods
Medicare Part D plans have four coverage periods you’ll move through within a calendar year depending on how much you spend out of pocket on your prescriptions. The coverage periods are the deductible period, initial coverage period, the donut hole, and catastrophic coverage.
- In the deductible period, you will pay the full cost of your medications until you have paid your full deductible. The average Part D deductible for 2020 is $435, up from $415 in 2019.
- You will enter the initial coverage period after you’ve met your deductible. During this period, you will typically pay a copay, or flat fee, for your prescription drugs. In 2020, you will need to spend $4,020 out of pocket in order to reach the coverage gap.
- During the coverage gap/donut hole, you will pay no more than 25 percent coinsurance for your brand-name or generic drugs as of 2020.
- For 2020, catastrophic coverage is when you’ll pay $8.95 for brand-name drugs and $3.60 for generics, or 5% of the list price—whichever is greater.
If you live in a low-income household and need help paying for your prescription drugs, consider applying for Medicare’s Extra Help program.