The Donut Hole Will Close in 2020: What Does That Mean?

By Shane Power, President of Watertree Health… 

About
22 million people in America are currently enrolled in Medicare Advantage Plans, and that number is expected to increase as open enrollment comes to an end on December 7, 2019

For those who opt for Medicare Part D prescription drug benefits, some may be unaware that the coverage gap (also known as the “donut hole”) will be closing in 2020 for generic drugs. (Due to federal legislation, the donut hole has already closed for brand-name drugs.) Currently 9 out of 10 prescriptions filled in the United States are generic drugs. Let’s discuss what the donut hole is, what happens when participants enter the donut hole, and what its closing means.  

What Is the Donut Hole?

To fully understand the donut hole, it’s important to understand the different stages of Medicare coverage. These currently include:

  1. Annual deductible (if applicable: varies by plan)
  2. Initial coverage
  3. Medicare coverage gap
  4. Catastrophic coverage

In the annual deductible stage, members pay the full cost of their prescription drugs until their deductible is reached. No Medicare drug plan may have a deductible more than $415 in 2019 ($435 in 2020), and some plans don’t have a deductible. Depending on the plan, initial coverage may be the first stage of benefits in which participants make a copayment for prescriptions. The next stage is the Medicare coverage gap, also known as the donut hole. When this gap is closed, the catastrophic coverage stage begins and the cost of copay and coinsurance are significantly lowered.

What Happens in the Donut Hole?

In 2019, a Medicare member enters the donut hole the moment their drug costs reach $3,820, which closes the initial coverage phase of their plan. Federally-funded discounts activate to help members pay for medications: 63% for generics; will increase to 75% in 2020. (In other words, the member is responsible for 37% of generics.) When these discounts are applied, members must pay the difference until the coverage gap is completed. Some Part D plans include extra coverage during the gap, lowering the out-of-pocket costs while in the donut hole. The donut hole does not close until their out-of-pocket costs reach $5,100. (These costs include those paid for brand name medications.)

What Does This Mean for 2020?

Even though people enrolled in Medicare Part D will only pay 25% of generic drug costs instead of 37%, they will actually need to pay more out-of-pocket before reaching the catastrophic stage of their plan, which covers 95% of drug costs. Coverage will begin only once out-of-pocket spending for generic and brand name prescriptions reaches $6,350, compared to $5,100 in 2019–a difference of $1,250. This is bad news for seniors on a fixed income who take numerous medications. 

To best understand how Medicare Part D plans may change in 2020 in your state, it’s recommended you contact the plan provider for further details. Share this article with friends and family to help them better understand Medicare coverage plans.