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Wisconsin Medicare Insurance

What is the Medicare Prescription Drug Plan Donut Hole?

The Medicare Part D coverage gap, also known as the Medicare “donut hole”, is the difference between the initial coverage limit and the catastrophic coverage threshold. Consider the following table for the year 2012, using a standard benefit design:

If the total cost of your covered prescription drugs is: You will pay: Your total out-of-pocket costs will be: Up to a maximum of:
$0 to $320 100% of costs Up to $320 $320
$320 and $2960 (initial coverage limit) 25% of covered costs $320 + 25% of the total costs above $320 $980
$2930 to $6657.50 (the coverage gap, or Donut Hole) 100% of costs $972.50 (co-pays made in the initial coverage limit) + up to $3727.50; In 2015, 55% brand-name drug discount and 35% generic drug discount $4700
Over $6657.50 (catastrophic coverage) 5%, or a co-payment of either $2.65 or $6.60 $4700, plus 5% or a co-payment of either $2.65 or $6.60 for the rest of the calendar year.

As you can see, prescription drug costs are paid 100% out-of-pocket when total spending for the year is within the donut hole range. A small percentage of plan subscribers hit this range. A subscriber is likely to hit this limit closer to the end of the calendar and suddenly incur a significant jump in drug costs, due to the coverage gap, until the end of the calendar year.

Note that a few high-premium plans pay some percentage of the costs incurred in the gap, such as offering coverage for lower-tier drugs. Also, be aware that the Affordable Care Act will gradually close this gap over the next several years until it is eliminated in the year 2020, at which time you will only pay 25% of the covered costs in this range until you reach the yearly out-of-pocket spending limit.

When evaluating your drug coverage needs, be sure to obtain a table of these costs and coverage amounts from each plan issuer and estimate your yearly drug expenses to determine if you’re subject to the donut hole gap.

Projecting your expected medication use and choosing the right Medicare Part D plan are important for limiting the additional expenses in the donut hole. If you're concerned about the donut hole and how it might affect you, call our experienced agents to assist you with choosing the right plan for your insurance needs.

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