Medicare: What is the donut hole?
Medicare Part D is the portion of Medicare coverage involving prescription drugs. The donut hole refers
to the gap in Medicare Part D coverage between the initial coverage limit and the amount of money the
beneficiary has to spend out of pocket before catastrophic coverage begins and Medicare covers 95%of
the beneficiary’s prescription drug costs. The dollar limits increase annually. In 2010, catastrophic
coverage did not begin until the beneficiary spent $4550 out of pocket.
This quirk in the law effectively left many beneficiaries without prescription drug coverage. The high
costs of prescription drugs meant that most people upon reaching the threshold stopped their
prescription regime once they hit the donut hole.
The Health Reform bill changed this in the following ways:
You'll receive a 50 percent discount on brand-name and biologic drugs, including insulin and
vaccines, contributed by their manufacturers.
You'll receive a 7 percent discount on generic drugs and Part D-covered supplies used to
administer insulin, through a subsidy from the federal government.
Over the next 10 years these discounts will get larger, so that by 2020 you will pay no more than
25 percent of the cost of any Part D-covered drugs in the doughnut hole.
Anyone who gets Part D coverage and falls into the donut hole is entitled to receive these discounts,
except for the those low income persons who are already receiving aid with prescription drug costs
under a different program.
The discounts cover brand-name and biologic drugs as a condition for them being covered under
the Part D program as a whole
What now counts toward the limit is everything you spent on drugs from the beginning of the
year — your out-of-pocket costs (deductible and copays) during the initial coverage period and
whatever you spent on drugs in the doughnut hole — plus the 50 percent discount on brand-
name and biologic drugs provided by the manufacturers.
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