The cost of the average drug plan is under $30/mo, which barely pays for 1 prescription. The Coverage Gap (donut hole) was meant to control drug costs and keep the program sustainable. Here’s how it works:
THERE ARE 4 “STAGES” IN A DRUG PLAN (based on a calendar year):
2. Initial Coverage
3. Coverage Gap (donut hole)
4. Catastrophic Coverage
If your plan has a deductible, you pay 100% for your meds until the deductible has been satisfied.
2. INITIAL COVERAGE
In this stage, you pay the plan’s copays for your meds
3. COVERAGE GAP (Donut Hole)
Medicare tracks the retail cost of the drugs you take. If the retail cost of your medications goes over $4,130 in the calendar year (2021), you enter the Coverage Gap (donut hole). During this stage, you no longer pay your copays. Instead, you pay about 25% of the cost of your meds.
Nobody likes to pay more for their meds, but consider this… there was NO Medicare drug coverage until George W. Bush signed it into law in 2006. And you used to have to pay 100% of your drug costs in the coverage gap (donut hole). Now you only pay 25% and that figure gets lower and lower every year.
4. CATASTROPHIC COVERAGE
After your yearly out-of-pocket drug costs reaches $6,550, you exit the Coverage Gap (donut hole) and go into the “Catastrophic Coverage” stage. In this final stage, you will pay:
* 5% Coinsurance or $3.70 copay for generic drugs (whichever is greater)
* 5% Coinsurance or $9.20 for non-generic drugs (whichever is greater)
NOTEWORTHY: If you’re headed toward the donut hole, be sure all of your medications are in your plan’s formulary. Why? Because any drugs that are not in the formulary will not count toward the donut hole – so it will take you longer to reach to the Catastrophic Stage where all of your drugs become much less expensive!
Author: Neil Steinman
Neil Steinman is the principal of Orange County Health & Life Insurance in Orange County, CA – and has been serving the needs of California residents for nearly 20 years.