|  | Healthcare Industry | Health Insurance

Rules on the Medicare Part D Coverage Gap

Medicare was originally created in two parts. Parts A and B offered coverage for hospital services as well as additional benefits for preventive services, home health and hospice care. In 1997, Part C, or Medicare Advantage, was added, and in 2003, Part D, which offers prescription drug coverage, joined the other three parts of Medicare. Part D plans come with a coverage gap that can be difficult to understand.

  1. Initial Coverage Limit

    • Medicare Part D plans come with an initial coverage limit. This limit is not what you personally pay out-of-pocket but is the total retail cost of all your prescription medications covered by Part D. As of 2011, this initial coverage limit was $2,840 for most Part D plans. Once you have exceeded your initial coverage limit, Part D benefits stop even though you must keep paying monthly premiums in order to keep the plan. Some Part D plans offer help during the coverage gap, but most do not.

    Donut Hole

    • Before 2011, once Part D users reached their coverage limits, also known as the donut hole, all prescription drug coverage stopped completely, and they had to pay all prescription drug costs themselves until they reached the catastrophic coverage threshold. In 2011, however, reforms meant to help close the donut hole went into effect. Part D members who were in the hole could now receive discounts of 50 percent off covered name-brand prescription medications and a 7 percent discount on covered generic medications until they reached the catastrophic coverage stage.

    Catastrophic Coverage Threshold

    • The donut hole ends once your drug costs reach the catastrophic level for prescriptions. This level is based on your true out-of-pocket costs, but purchasing name-brand drugs at a 50 percent discount gives you credit for the full retail amount. As of 2011, this threshold was $4,550. Once you have paid this amount for your medications, Part D benefits resume. At this point, members only pay 5 percent of their retail drug costs.

    Reforms

    • Reforms meant to eventually close the Part D coverage gap for good began in 2011 although Part D members who were already in the donut hole in 2010 began receiving rebates to help them afford medications. The amount of discounts for name-brand and generic drugs will be increased every year until 2020, at which time Part D users will only be responsible for paying 25 percent of all covered drugs.

Health Insurance - Related Articles