Your share of prescription costs don't change when you enter the coverage gap, but your Part D plan's share does.
Part D (prescription drug) plans have a drug coverage gap, also known as the “donut hole” or “donut hole insurance,” which provides a temporary limit on what the drug plan will cover for your prescription drugs.
While not everyone will enter the coverage gap, knowing when you enter it, what your coverage is, and how much you will have to pay out-of-pocket is important. It can seem overwhelming, but there are things you can do to both avoid it and get out of it.
What Is the Medicare Coverage Gap?
The coverage gap begins after both you and your drug plan have spent a certain amount ($4,660 in 2023) on your prescription drugs. This includes what your plan has paid, your deductible, and the copayments and coinsurance you’ve paid. This amount may change each year, and people with Medicare who get Extra Help paying Part D costs will never enter the coverage gap.
In the coverage gap, you will pay no more than 25 percent of the cost of your drugs, and 25 percent of the dispensing fee - just as you did before entering the coverage gap.
You then exit the coverage gap stage when your total out-of-pocket costs have reached a certain amount ($7,400 in 2023), where you then enter the next stage of Part D coverage called the “catastrophic stage.”
Your plan (either Medicare or Part C plan) will help you keep track of how much you’ve spent out of pocket for covered drugs, as well as your progression through coverage periods. This information is on your monthly statement.
Brand-name prescription drugs
Once you reach the coverage gap, you’ll pay no more than 25 percent of the cost for your plan’s covered brand-name prescription drugs, as long as you buy them at an approved pharmacy or through the mail.
However, almost the full price of the drug will count toward out-of-pocket costs, including both what you pay and what the manufacturer pays, which will help you get out of the coverage gap faster.
- Manufacturer pays 70 percent to discount the price for you, your plan pays 5 percent, and you pay the other 25 percent.
What the plan pays toward the cost of the drug and fees aren’t counted toward your out-of-pocket spending, but the remainder of the cost does.
You will pay 25 percent of the price for generic drugs in the coverage gap. Medicare will pay the other 75 percent.
Generic drug coverage works a little different than brand-name drug coverage. For generic drugs, only the amount you pay counts toward getting out of the coverage gap instead of the plan and manufacturer costs as well.
How Do I Get Out of the Coverage Gap?
Once you’ve spent a certain amount ($7,400 in 2023) in out-of-pocket costs for covered drugs, you’re out of the coverage gap and you’ll automatically enter the catastrophic coverage stage. This total is the amount that you have paid, not the total amount you and your plan have paid.
Once you enter the catastrophic coverage phase, you’ll only pay a small coinsurance or copayment for covered drugs for the remainder of the year.
- $3.95 for generic drugs
- $9.85 for brand-name drugs
What counts toward the coverage gap?
- Your annual deductible ($505 in 2023), coinsurance and copays
- Discounts you get on brand-name drugs in the coverage gap
- What you paid in the initial coverage period
- What you pay in the coverage gap
What doesn’t count toward the coverage gap?
- Your Part D plan premium
- Pharmacy dispensing fees
- Cost of non-covered drugs
- The 75 percent generic discount
How to Avoid the Coverage Gap
There are a few ways to avoid the coverage gap all together, primarily through keeping your prescription drug costs low. Here are a few ways you can avoid reaching the coverage gap threshold:
- Buy generic prescriptions. Generic drugs are typically less expensive, and in most cases the same as their brand-name alternative. They are required by the Food and Drug Administration (FDA) to have the same ingredients, at the same dosage, be administered the same way, and have the same effect.
- Order prescriptions by mail. Many drug plans offer a discount if you order a three-month supply by mail instead of a 30-day supply from the pharmacy.
- Ask for drug manufacturer discounts. Some pharmaceutical companies offer products at a discount directly to consumers or through the doctor’s office. Ask your doctor when they prescribe a medication to you if there are any discounts available.
- Shop for a new Part D plan. Each year when you receive your Annual Notice of Coverage, check to see if your prescription drug coverage or costs have changed. Compare Part D plans available in your area to learn if another plan has better coverage or lower costs.
- Plan ahead. If you can, plan ahead and estimate your annual drug costs, as well as how you will pay for them if you do enter the coverage gap. This is especially important if you take a lot of brand-name or high-cost medications, or have chronic conditions that must be managed by medications.
Four Stages of Medicare Part D Coverage
There are four stages of Medicare Part D coverage, each with different costs associated with them.
Annual deductible stage
When you fill your first prescription of the year (covered by Part D), you begin the Annual Deductible Stage. You pay the full cost of your drugs until the amount of your deductible has been reached.
If your plan has a $0 deductible, you skip to the next stage.
Initial coverage stage
This begins after you meet your deductible. (If your plan doesn’t have a deductible, this is the first stage of your benefit coverage). You pay a copayment or coinsurance for covered prescription drugs until you reach the plan’s initial coverage limit. It generally amounts to around 25% of the cost of your prescriptions.
Medicare coverage gap stage
You enter this stage after your total drug costs have reached a certain amount ($4,660 in 2023). Typically, you pay 25 percent of the cost for covered drugs.
Catastrophic coverage stage
You reach this stage when your total out-of-pocket costs reach a certain amount ($7,400 in 2023). During this stage, you pay a low copayment or coinsurance for prescription drugs.
What Is Medicare Part D?
Medicare Part D provides insurance coverage for a wide range of prescription drugs and supplies. Part D plans may come from private insurers or be a part of a Medicare Advantage (Part C) plan.
Typically, you’ll receive a separate insurance card to be used at in-network pharmacies and medical suppliers for covered drugs and supplies. With a Part D plan, monthly premiums, annual deductibles, copays and coinsurance vary by plan.
Each Part D plan has a formulary, or a list of covered drugs, to help you understand whether or not your prescriptions will be covered. The formulary lists both generic and brand-name drugs and coverage. The drugs are listed in commonly prescribed categories and classes, and are updated on a regular basis.
If your specific prescription drugs are not listed, in some cases a similar drug should be available. Talk with your doctor or pharmacist to learn if drugs on the plan’s formulary will work for you.
What are “tiers”?
Each plan places drugs into different levels called tiers, and drugs in each tier have different costs. For example, a drug in a lower tier will generally cost you less than a drug in a higher tier. While tiers can be different based on plan, they typically follow the following:
- Tier 1: generic prescription drugs (lowest copay)
- Tier 2: preferred, brand-name prescription drugs
- Tier 3: non-preferred, brand-name prescription drug
- Tier 4: high-cost prescription drugs (highest copay)
Part D Costs
With a prescription drug plan, you will may various payments throughout the year including:
- Monthly premium (if applicable)
- Annual deductible (if applicable, but no more than $505 in 2023)
- Copayments or coinsurance
- Costs in coverage gap (if applicable)
- Costs if you must pay a late enrollment penalty
Your actual out-of-pocket costs will vary based on a number of factors. For example, some plans offer $0 monthly premiums or low annual deductibles, while others charge a monthly premium or higher deductibles.
Your costs will also depend on whether or not your prescriptions are in the formulary, and what tier they fall into. You should also get your prescriptions filled at an in-network pharmacy to keep costs low.
How to Get Help With Prescription Costs
If you reach the coverage gap and need help with the costs of prescription drugs, here are a few tips:
- Consider switching to generic or other lower-cost drugs. These drugs work just as well as brand-name drugs you may be taking now, so talk to your doctor or pharmacist to learn if these are an option for you.
- Choose a Medicare Part D plan that offers additional coverage in the coverage gap. Some plans offer additional coverage, particularly for generic drugs, though typically have a higher monthly premium.
- Ask about Pharmaceutical Assistance Programs. Some pharmaceutical companies offer help paying for medications for people enrolled in Part D coverage.
- Some states also offer help paying for prescriptions, premiums and other drug costs. Contact Medicare to learn if your state offers this assistance.
- Apply for Extra Help. Medicare and Social Security offer a program called Extra Help, which helps those with limited income.
When to Apply for Medicare
There are a few times per year when you can sign up for either a Medicare drug plan (Part D) or Medicare Advantage plan (Part C). During these times, you can also make changes to your existing coverage. In order to enroll, you must also have Part A and/or Part B, and live in the Part D plan’s service area.
Initial Enrollment Period
When you’re newly eligible for Medicare because you just turned 65, you’re able to enroll in the three months before the month you turn 65, the month you turn 65, and the three months after you turn 65.
When you’re newly eligible for Medicare because you have a disability, you’re able to enroll 24 months after you get your Social Security or Railroad Retirement Board (RRB) benefits. Your enrollment period is the three months before your 25th month of receiving benefits, the 25th month of getting disability benefits, and the three months after the 25th month of getting disability benefits.
If you’re already eligible for Medicare due to a disability and turn 65, you’re able to sign up for an MA plan or Part D plan, switch from your current plan to another, or drop an MA plan or drug coverage completely. You can do this in the three months before the month you turn 65, the month you turn 65, and the three months after you turn 65.
If you don’t have Medicare Part A and enroll in Part B during the Part B General Enrollment Period, you can sign up for a Medicare drug plan from April 1 through June 30.
If you have Part A coverage and enroll in Medicare Part B during the Part B General Enrollment Period, you can sign up for an MA plan with or without drug coverage from April 1 through June 30.
Other Enrollment Periods
Open Enrollment Period for Medicare Advantage and Medicare prescription drug coverage takes place from October 15 through December 7. You can enroll in a Medicare Advantage plan or Part D plan, switch from one plan to another, or drop coverage.
Medicare Advantage Open Enrollment Period takes place from January 1 through March 31. You can switch from one MA plan to another (with or without drug coverage or drop your MA plan and return to Original Medicare or join a Part D plan.
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