Donut Holes Aren’t Always Tasty!

If your brain works like mine, it thinks about food a lot more than it should.  And it’s always food that’s not good for me, like donut holes.  Nothing beats a donut hole.  It’s like eating a whole donut in one bite…AWESOME!

But when it comes to the Medicare Prescription Drug Plan, donut holes lose their luster.  Don’t ask me why Medicare decided to give it the name donut hole, maybe it was to take the edge off its bite (no pun intended, unless you think it’s funny).  The Donut Hole, otherwise known as the coverage gap, is exactly what it sounds like.  It is a hole in your coverage.  Here’s how it works according to the Medicare guidelines:

Stage 1: The plans start off with a “Deductible Period.”  This is the amount you must pay for out of your pocket before the plan will pay anything.  Not all plans have a deductible.  The plans cannot have a deductible higher than $320.

Stage 2: After you have met your deductible (if you have one) you go into what is called the “Initial Coverage Level.”  During this stage you will pay approximately 25% of the cost of the medication.  Most drug plans set up copays during this stage based on the medication which they assign to a Tier.  For instance, you might pay a copay of $5 for generics (Tier 1), $25 for formulary brand names (Tier 2) and $45 for nonformulary brand names (Tier 3).

Stage 3:  Once you have had $2930 in total drug costs, you will go into the “Donut Hole.”  Notice I said “total drug costs.”  This means what you paid for the medications plus what the plan paid.  For example, if the total cost of a medication is $100 and you only had to pay a copay of $25, it’s the entire $100 that goes toward the donut hole number.  Once in the donut hole you will pay 50% of the full cost of any brand name medications and 86% of the full cost of any generics.  Due to the new healthcare reform, these percentages will continue to decrease each year until they reach 25% in the year 2020.

Stage 4:  Once you have paid a total of $4700 in out-of-pocket costs (not including the premium for the plan), you enter the “Catastrophic Coverage Level.”  Notice that this amount is out-of-pocket meaning that you would have to pay a total of $4700 before you entered this next level.  Once you hit this level you would only pay approximately 5% of the cost of the medication for the rest of the calendar year.

Once you reach the end of the calendar year, all plans start back at Stage 1 on January 1st.

According to a report from the Kaiser Family Foundation, approximately 19% of Medicare beneficiaries reach the donut hole at some point during the year.  So not everyone has to worry about hitting the donut hole, but if you do your expenses can add up in a hurry.  For those of you who are in this situation, maybe you can ease the pain with a box of donut holes (the good kind from the local bakery).

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