Illlinos Medicare Part D “Donut Hole”

August 21, 2011 Category: Medicare, Medicare Drug Plan

So I was in a local donut shop (name to remain anonymous, no free endorsements yet) this past weekend with my youngest and I decided that since I am I watching my caloric intake of sweets that I would just order the donut holes – they are are small enough and can’t be that bad for me. So I did and then all of sudden a voice from beyond (well from a table by the window) called out “you don’t want to get stuck in donut holes…get a bear claw.”

I turned to see who was trying to lay wisdom on me and noticed that it was a client of mine – one who is coming into Medicare in about six months. Well, I bought the donut holes anyway and my youngest and I went and sat with him.

It seems that he has nothing against the sweet goodness of the donut holes, rather the Medicare “donut hole” is what is giving him fits. So he asked me to explain it to him and what changes have been made to it that he has been reading about.

Gap coverage or the “donut hole” as it is commonly known, has many scratching their head. For one, not everyone on Medicare reaches the “donut hole”, especially if you aren’t taking medication or not many high priced ones.

What is Medicare’s “donut hole”?

Medicare Part D, Medicare’s prescription drug coverage insurance, is set up track an individual’s True Out-Of-Pocket prescription costs (TROOP). Once those costs reach and exceed a set threshold ($2,840 for 2011) the individual is in the “donut hole”. Keep in mind, I said True Out-Of-Pocket costs – those are the true retail costs of the medications that an individual is taking not what the individual pays, rather what the individual and the insurance carrier pay.

Still with me?

So a medication that retails for $100 (TROOP) might cost an individual a $40 co-pay. The other $60 is being picked up by the insurance carrier.

Let’s say an individual’s TROOP costs have reached $2,840 at some point during the year. That individual goes into the “donut hole”. However, the costs that the individual has paid out of his or her pocket thus far (co-payments only, not plan premium costs) might be $1,200.

In 2011, once in the “donut hole” the cost-sharing has been revised to offer relief to the individual. Pharmaceutical companies, by law, must now pick up the first 50% of all brand (not generics) medication costs. Leaving the individual to pay for the other 50%. If the medication is generic, then depending on the carrier’s plan, the individual must pay 93% (insurance carrier pays 7%) of the cost of that generic or whatever the plan structure states is the individuals responsibility for the cost.

Once an individual’s TROOP retail costs of drugs while in the “donut hole” exceed $4,550, then that individual is out of the “donut hole”. For purposes of the example that we used – the individual with $1,200 in out-of-pocket costs that reached the “donut hole” would have to have TROOP of $3,350 while in the “donut hole” ($1,200 + $3,350 = $4,550) to get out of it. But half of that $3,350 is being picked up by the Pharmaceutical companies – saving the individual about $1,675 in costs (assuming no generic drugs) in 2011.