Medicare Donut Hole 2020 Coverage Gap

Medicare donut hole is a coverage gap in Medicare Part D that can affect your out-of-pocket costs in 2020. You may have heard the donut hole has closed on January 1, 2020. Many people are excited because they believe their drug coverage will be free. However, there still is a hole in Medicare Part D coverage.

Medicare Part D Donut Hole 2020

Medicare Part D drug plans have 4 stages, as follows:

  1. Deductible – you pay deductible of $435 in 2020. After the deductible is paid, you enter stage 2.
  2. Initial Coverage – you pay only copays for your prescription drugs. After your plan spends $4,020 in 2020, you enter stage 3.
  3. Coverage Gap – you pay 25% coinsurance for both brand-name and generic drugs. After total out-of-pocket drug costs are $6,350 in 2020, you enter stage 4.
  4. Catastrophic Coverage – you pay a small coinsurance amount or copayment for covered drugs for the rest of the year.

A Brief History of The Donut Hole

Medicare Donut Hole 2020

When the Affordable Care Act passed in 2010, also known as ObamaCare, the donut hole has been slowly closing. In 2019, you paid 25% of the cost for brand-name drugs and 37% of the cost for generic drugs while in the “donut hole” stage. In 2020, the 37% coinsurance for generic drugs in stage three reduced to 25%. Thus, reducing the size of the Medicare Donut Hole by 12%.

Medicare part d Coverage Gap 2020

Medicare Part D have a coverage gap called the Donut Hole. You enter the donut hole coverage gap when your prescription drug plan spends $4,020 in 2020. On the other hand, if you spend less than $4,020 in your Medicare drug plan, then you will not enter the donut hole. Furthermore, people with certain income and resource limits may qualify for Extra Help program. People who get Extra Help paying Part D costs will not enter the donut hole.

2020 Coverage Gap for Brand-name Prescription Drugs

In 2020, after you have spent $4,020 in your Medicare drug plan, the most you will pay for brand-name prescription drugs is 25%. While inside the donut hole, you will spend maximum of 25% for each brand-name prescription drug you buy at the pharmacy or by mail order. Even though you pay no more than 25% of the price for brand-name drugs, almost the full price of the drub will count as out-of-pocket costs to help you get out of this coverage gap. What you and the manufacturer pays (95% of the cost of the drug) will count towards your out-of-pocket spending.

2020 Coverage Gap for Generic Drugs

If you enter the donut hole in 2020, Medicare will pay 75% of the price for your generic drugs. Consequently, you will pay the remaining 25% of the price. Unlike the out-of-pocket coverage help you get with brand-name drugs, only the price you pay for generic drugs will count toward getting you out of the coverage gap.

Medicare Donut Hole expenses

Medicare Donut Hole 2020
When you are in Medicare Donut Hole, you pay 25% for prescription drugs in 2020.

What does it cost when you are in the donut hole? Most people who have Tier 3 drugs such as Insulin pen injector for Type 2 diabetes have drug plans that spend thousand of dollars per month. For example, the retail drug cost for Insulin lispro 3ml pen that treats intermediate Type 2 diabetes is about $1900 per month. Before the donut hole, you pay a fixed copay of about $26. Once inside the coverage gap, you pay $475 per month (25% of $1900). Moreover, this coverage gap could occur quickly based on the high cost of Tier 3 prescription drugs. In other words, you could be in the donut hole as early as February or March. So how long will you have to pay until you exit this coverage gap?

When does the Medicare Donut Hole end?

You can accelerate the end of Medicare Part D coverage gap, by changing from generic drugs to brand-name drugs. This is because the price the manufacturer pays is added to your out-of-pocket costs. As a result, the brand-name manufacturer will help you increase your total out-of-pocket expenses. You will be out of the donut hole once your out-of-pocket drug costs are $6,350 in 2020. In other words, you and your brand-name drug manufacturer must spend $2,330 inside the donut hole before you are out of the coverage gap.

Once you exit the donut hole, you enter the catastrophic coverage (stage 4). Then you only pay a small coinsurance amount or copayment for covered drugs for the rest of the year.