Medicare can be the difference between a comfortable retirement and constant added stress for those in the autumn of their lives. In that way, the Medicare program helps provide medical coverage and prescription drugs for those who need them most.

However, a very small number of patients might find that after signing up and receiving their medication, they reach what is known as the "donut hole" coverage period until they recoup those costs again and continue with their regular prescription drug plan. This article will go over what the donut hole is, how to avoid it, and what you should know if you are poised to end up in it soon.

Part D is what’s known as Medicare’s prescription-drug benefit plan. Coverage of this type typically includes brand-name prescription and generic drugs to keep the overall costs incurred down. To help keep things organized and easy to understand, plans place drugs into different levels or tiers on their lists — also referred to as a “formulary” — of the covered drugs they offer.

Here's an example of what these tiers might look like, but your plan may differ:

• Tier 1: lowest copayment — most generic prescription drugs
• Tier 2: medium copayment — preferred brand-name prescription drugs
• Tier 3: higher copayment — non-preferred brand-name prescription drugs
• Specialty Tier: highest copayment — very high-cost prescription drugs

In general, prioritizing generic drugs over brand-name drugs can save you money in the long run. Sticking to the drugs in your plan’s formulary may also save you money. Healthcare providers know this and should advise you on the best way of treating your condition with a mix of different kinds of medication. If you use a drug that isn’t on your plan’s drug list, you may find that you’ll have to pay full price instead of a copayment or coinsurance.

Another thing to look out for is the necessity to prioritize costlier drugs in the higher tiers. If you do this and exceed your co-pay, you may fall into a coverage gap, otherwise known as the "donut hole." This coverage gap begins after you and your Medicare drug plan have spent a certain amount on covered drugs — or a fixed sum of $4,660 in 2023. However, keep in mind this amount may change each year.

The donut hole is a coverage gap with a temporary limit on what the plan will cover for drugs. In the past, patients were responsible for paying a sizable chunk of the expenditures. Thanks to recent legislation, going forward, these patients will receive some help when they enter the donut hole. “Once you reach the coverage gap, you'll pay no more than 25% of the cost for your plan's covered brand-name prescription drugs,” states Medicare.gov. Some plans may offer patients even lower costs in the coverage gap.

If you reach the donut hole, you’re required to pay your share for your prescription drugs until you reach the coverage gap threshold, which can vary from state to state and depend on your type of coverage. You leave the 2023 donut hole after your total out-of-pocket costs exceed $7,400. You then enter the “catastrophic coverage” portion of your drug plan. When you reach catastrophic coverage, your copay reduces substantially. The following example provides an explanation of what you could pay in the donut hole:

Mrs. Smith reaches the coverage gap in her Medicare drug plan. She goes to her pharmacy to fill a prescription for a covered brand-name drug. The price is $60, and there's a $2 dispensing fee that gets added to the cost, making the total price $62. Mrs. Smith will have to pay 25% of the total cost ($62 x .25 = $15.50).

Whether you’re on Part D or a Medicare Advantage Plan, there are ways to avoid falling into the donut hole. Here are five strategies to help you avoid this coverage gap and reduce out-of-pocket expenses.

When it comes to prescription drugs, it’s essential to shop around for plans that fit your needs and budget.

Also, make sure to review your prescription drug coverage annually to ensure that you’re receiving the best possible coverage at a price that makes sense for your budget. This way, you can avoid falling into the Medicare donut hole.

If you’re currently in the donut hole, you can utilize pharmaceutical assistance programs to cover the cost of prescription drugs. These programs are sometimes offered by pharmaceutical companies to help pay for medications for people enrolled in Medicare Part D. This can help you avoid paying the full price for drugs during this coverage gap.

If you qualify for an assistance program, you can let it help pay for prescription drugs while you’re in the donut hole. Don’t forget that you need to apply for coverage each year.

Oftentimes, people don’t realize that they can request a generic alternative to their brand-name drugs. This is important to remember because generic drugs are substantially less expensive than their brand-name equivalents. When you reach the coverage gap, try to substitute your name-brand drug with the generic alternative if possible.

While this won’t be possible for every drug, it’s something to keep in mind. If you’re currently in the donut hole, it’s imperative that you understand that Medicare doesn’t require your specific plan to cover a generic alternative. Again, this is something to be on the lookout for when choosing a plan. If your plan doesn’t cover a generic alternative, it’s worthwhile to look into switching to one that does.

If you’re in or on the verge of the donut hole, your doctor can work with you to see if there is a generic alternative to your brand-name drug that might lower your costs. This could help cut your out-of-pocket costs in the coverage gap. If you can avoid paying full price for a name-brand drug, you’ll likely save money and keep from falling into the donut hole.

There are four specific stages of coverage within Part D of Medicare. These include the annual deductible stage, the initial coverage stage, coverage gaps, and catastrophic coverage. Understanding these four stages of Part D coverage can help you know what’s in store and plan accordingly.

The annual deductible stage is the stage in which you pay the full cost of your prescriptions until you reach your deductible amount. Therefore, if your plan's deductible is $0, proceed immediately to the next step. Keep in mind that some deductibles may only apply to medications on certain tiers, meaning you may not have any deductible if you don’t take any prescription drugs on that specific list. Any payments made for your monthly premium or for medications on tiers that do not apply to the deductible are excluded from the deductible.

This stage begins immediately if your plan has no deductible — or, alternatively, when the payments you have made towards your prescription drugs equal your plan’s deductible.

Your plan pays for a portion of each medication you purchase, as long as it’s covered under the plan's list of covered drugs. You are responsible for paying the other portion, which is either a copayment or coinsurance. This amount will depend on the tier level of your drug (see the example above). This stage ends when the total amount spent by you and your plan on your prescription drugs adds up to equal the initial coverage limit set by Medicare for that year, or $4,660 in 2023. Your monthly premium payments do not count toward reaching that limit.

While not everyone will enter the coverage gap, it’s beneficial to understand it if it does happen. In the coverage gap or donut hole, the plan is temporarily limited in how much it can pay for your drugs. As explained above, in the donut hole, you'll be responsible for paying 25% of the plan's cost for covered brand-name and generic drugs. To find the best cost savings, it’s worthwhile to calculate the price differential between the two, as the cost of brand-name drugs may be much higher than the generic options.

You exit the coverage gap when your total out-of-pocket cost on covered drugs reaches $7,400. Your out-of-pocket cost is calculated by adding together all of the following: yearly deductible, coinsurance, and copayments from the entire plan year, and what you paid for drugs in the coverage gap.

After your out-of-pocket costs total $7,400, you officially exit the gap and enter what’s referred to as catastrophic coverage. In this stage, you will pay a low coinsurance or copayment amount set by Medicare for all of your covered prescription drugs. That means the plan and the government pay for the rest — or about 95% of the cost. You will remain in this stage until the end of the plan year.

If you have coverage gaps, there are a few things you can do to help bridge the gap and maintain reliable health care.

Check with your health insurance provider to see if they provide coverage gap assistance. You can also seek assistance from your state's health insurance marketplace and seek help from drug companies directly. Furthermore, look into public programs that may be of assistance.

If you’re interested in learning more about coverage gaps, it is essential that you speak with an experienced professional. At OpenMedicare, we connect you with licensed insurance agents who can assist you in comprehending the complexities of this healthcare program and how it best meets your needs. Visit our website to learn more today!

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