Penn Medicare Solutions
A division of Penn Health Insurance Solutions, Inc.
Serving PA, NJ, DE & MD
2960 Ash Mill Road – P.O. Box 309
Holicong, PA 18928
Medicare Donut Hole
Medicare Prescription Coverage and the “Donut Hole”
Q: How do co-pays on Medicare Prescription Drug Plans Work?
A: Medicare prescriptions drug plans, also known as Medicare Advantage Part D prescription plans, are generally divided into three co-payment sections: (1) Initial Coverage; (2) Coverage Gap (aka “donut hole”); (3) Post-Coverage Gap Catastrophic Coverage.
Q: How does the Initial Coverage Section work?
A: The Initial coverage section of a Medicare Part D Prescription plan consists of a series of co-payments due per prescription. The co-payment varies based on whether the prescription is considered a generic, a favored-brand name prescription (where the insurer receives favorable pricing from the drug company); or a name-brand, but higher priced prescription. Some prescription plans also have an annual calendar year prescription deductible before co-pays begin.
Medicare Part D prescription plans will cover prescriptions in the initial coverage section up until annual costs reach $4,020 in 2020, at which point the coverage gap known as the “donut hole” begins.
Q: How do the coverage gap/”doughnut hole” and post-coverage gap catastrophic coverage concepts work?
A: During 2020, when the sum of prescription drug co-pays you’ve paid plus what the insurer has paid to cover the remaining costs of your prescriptions reaches $4,020, the coverage gap period known as the “donut hole” begins. At this point, you will generally pay 25% of “retail cash price” for name-brand prescriptions and an approximately 37% of “retail cash price” for generic prescriptions.
You would continue to pay these discounted cash prices until you are credited with having spent $6,350 out-of-pocket during 2020. To soften this $6,350 number…you will be credited nearly $3 for every $1 spent on nearly all name-brand prescriptions, and $1.70 for every $1.00 spent on generics, which means you would not be spending the entire $6,350.
Catastrophic Coverage Period – During 2020, after a person has been credited for a total of $6,350 in calendar year out-of-pocket prescription costs, the catastrophic coverage period begins. Here co-pays would be $3.60 per or 5% of cost per generic prescription filled, whichever is higher. For name-brand prescriptions co-pays would be $8.95 or 5% of cost, whichever is higher.
Q: Does everybody who enters the coverage gap area also enter the post-coverage gap catastrophic coverage area?
A: No. Most persons who enter the coverage gap area will finish the year in this area as their credited out-of-pocket costs did not reach the required $6,350. For example, Mr. Jones reaches the coverage gap in October 2020, then pays out of pocket cash price for November and December. At January 1, with the new year, the coverage resets back to the initial coverage area and the process plays out again.
Q: Is this system overly-complicated?
A: Yes… but we work with Medicare plans full-time and our job is to navigate this for your specific needs.
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