The Coverage Gap – Donut Hole

Medicare Part D coverage has 4 phases starting in the beginning of each policy period, which is January 1 or the date you qualify for Medicare.

Phase 1 – Deductible Phase

In the first phase of Medicare Part D you pay 100% of the cost of the Prescription until the Deductible is met. The Deductible may change each year, in 2020 it was $435.00

Phase 2 – Initial Coverage

You pay the co-payments and co-insurance until the total cost of the prescriptions reaches a limit set by law each year, in 2020 the limit was $4,020.00

Phase 3 – Coverage Gap (the Hole)

The Medicare Part D Coverage Gap starts when your total yearly drug cost reaches the limits set by law as noted in 2020 the limit was $4,020.00. In the Coverage Gap the drug manufacture gives a 50% discount, the plan pays 25% and you pay 25% for brand name and generic drugs. This continues until a combination of the drug manufactures discount and your out of pocket costs reaches $6,350.00.

The out of pocket costs should not be confused with the limits noted in Phase 2. The limit in Phase 2 is what the plan paid out on your behalf as the out of pocket limits is what you paid out including the drug manufactures discount.

Example: You have a monthly prescription cost of $1,387.00 for one drug; your cost is the plan co-payment which for this example is $47.00. At that rate in 3 months, you will be in the Coverage Gap. Your cost will be $346.75, which is 25% of the $1,387.00. Your out of pocket cost at the end of month 4 is $1,181.25; this is the total of 3 co-payments you paid and 50% drug manufactures discount and your payment of 25%. After the 5th month the total out of pocket cost will increase at a rate of 75% of the prescription cost (Drug Manufacturers 50% discount and your 25% payment). Once that total for the year reaches $6,350.00 you will then enter the Catastrophic Coverage stage. At some point in September (9th month) you will hit the limit of $6,350.00 and your monthly cost will reduce to $69.35 as you will enter the Catastrophic Coverage Phase.

Phase 4 – Catastrophic Coverage

After your yearly cost reaches the Coverage Gap limit you will pay the greater of:

  • 5% of the cost or;
  • $3.60 co-payment for generics and $8.95 co-payment for all other drugs

To speak with a Medicare Specialist call Mike at (610) 420-6064.