The Donut Hole: Not Munchkin, but Medicare
Author credit: Whitney Puyang, PittPharmacy PharmD Candidate 2023
Want to learn about Medicare? Probably not! But you might need to; it’s something that could be a necessity eventually, and along with it comes the foreboding “donut hole”. With an unassuming name like that, you wouldn’t think that it’s the behemoth it really is: a coverage gap in Medicare Part D plans that brings a fiscal dread to the millions of Americans unlucky enough to experience it every year.
Medicare has four possible stages: stage one, the deductible; stage two, the initial coverage; stage three, the coverage gap or “donut hole”; and stage four, catastrophic coverage. In the deductible stage, you pay a certain amount for your medications yourself before Medicare is willing to initially step in and cover a minimum of 25% of the cost. Some plans don’t have a deductible. This can vary with plans, but there is a hard limit of $435 this year, after which you would enter the initial coverage.
In initial coverage, plans have the patient either pay a copayment, which would be the same cost for all drugs of the same tier, or a coinsurance, in which the patient would pay a set percentage of the costs of what drugs they are taking. Tiers are groups of medications that the insurance is willing to cover the same amount or percent for; most generic formulations of medications are preferred by insurance, but many medications are not initially covered.
Next is the donut hole: For the year of 2020, this has actually changed; instead of paying for the whole amount, Medicare is now required to share 25% of the burden while you are in this coverage gap. When you spend a maximum total of $4,020, you leave the initial coverage stage and enter the donut hole. This $4,020 is not just your costs; it includes the amount of copay that insurance is paying for, so you will have spent less than $4,020 out of your own pocket when you hit this gap.
This stage of time can be financially devastating to many people because the coverage that was provided in initial coverage is taken away and instead, Medicare says “I’ll only pay 25% for your medications until you pay enough that I feel bad for you and will start to pay again.”
Wait; wasn’t initial coverage a minimum 25% coverage too? What makes the donut hole different?
The key word is minimum. Due to how insurance works in the United States, oftentimes the insurance will pay for more than 25% for an initial coverage copay. In fact, most of them do; that’s why it’s so unexpectedly devastating when someone might have paid $40 for a medication in September and come October, suddenly has to pay $350 for the same amount. You pay for a tremendous share of your own prescription prices until your wallet has been thoroughly beaten up.
This year, when your out-of-pocket expenses hit $6,350, you reach catastrophic coverage and Medicare steps in to help reduce the cost burden again. However, this $6,350 is unlike before, where the amount insurance paid is always factored in; this $6,350 has to come directly out of your pockets to pay for your generic medications. If you are taking brand medications, the combined amount that you and your insurance pay for the medication adds up to your total. Medicare will pay 25% of the copay for brand medications and 75% of the copay for generics.
The median household income for a 65-and-older Pennsylvania resident is $40,464. That means the median Part D member would have to put a very significant percent of their income towards this gap, and that’s not counting other fees like the cost of premiums! It’s a period of extreme financial strain for many people, with a system that often seems combative towards the insured.
But what can we do about this? You need insurance; don’t you?
That’s why insurance-free models have been recently popping up, like Blueberry Pharmacy. For Part D holders, sometimes bypassing insurance can actually save you money — by keeping you out of the donut hole or making medications cheaper when you are in the donut hole. Additionally, we can help you navigate manufacturer assistance programs . By skipping insurance, pharmacies like Blueberry can offer cheap medications even if you enter the donut hole.
