Medicare Part D requires Medicare recipients to buy insurance to help cover prescription medication costs. It works a little differently from other kinds of health insurance. When your loved one and the insurance company have paid a specified amount each year, she enters the coverage gap also known as the “donut hole.” The “specified amount” — set by federal law — includes the deductible (if she has one), her co-pays, and the balance of the costs the insurance company pays.

Consider Gloria. In her case, the specified amount for the year is $2700. She has a $120 deductible and takes three prescription medications each month:

 

  • Medication A (brand name drug) costs $435 per month. Gloria’s co-pay is $30 per month, with the insurance company paying $405 per month.
  • Medication B (generic drug) costs $60 per month. Gloria’s co-pay is $5 per month, with the insurance company paying the balance of $55.
  • Medication C (generic drug) costs $120 per month. Gloria’s co-pay is $10 per month. The insurance company pays the $110 balance.

 

Gloria will reach the $2700 mark in May. At this point, she enters donut hole. While in the donut hole, Gloria’s co-pays increase and the insurance company stops paying anything.

If the drug is a brand name, the drug’s manufacturer provides a discount on the medication. In 2015, that discount was 55%. So in 2015, Gloria paid 45% of the drug’s total cost. If the drug was generic, the government discounted it by 35%, and so Gloria paid 65% of the drug’s total cost.

  • Medication A: $435 per month x .45 = $195.75 (the new co-pay)
  • Medication B: $60 per month x .65 = $39.00 (the new co-pay)
  • Medication C: $120 per month x .65 = $78.00 (the new co-pay)

 

To get out of the donut hole, the amount Gloria spends on prescriptions must meet a certain dollar amount. What counts toward meeting this “get-out-of-the-hole” amount? Co-pays and the amounts of the discounts offered on brand name drugs.

Next week, we’ll look at a program that helps low-income Part D recipients with the costs of prescriptions when they enter the donut hole.