|  | Healthcare Industry | Health Insurance

The Medicare Doughnut Hole Explained

Medicare comes in four parts. Parts A and B, original Medicare, covers hospitalizations, preventive services, home health care and hospice. Part C, usually referred to as Medicare Advantage, allows customers to buy original Medicare plus additional benefits from private companies. Part D was created in the Medicare Modernization Act of 2003 and covers prescription drugs. However, Part D features an enormous dip in coverage that beneficiaries often refer to as the Doughnut Hole.

  1. Part D Plans

    • Part D Medicare comes from private companies and not directly from the federal government. Medicare beneficiaries can buy Part D either as a stand-alone plan or combined with A and B in Medicare Advantage. While these companies must be approved by the Centers for Medicare and Medicaid Services, they are allowed to set their own premiums and regulations regarding the types of drugs covered, deductibles and co-pays. The point where coverage falls into the doughnut hole will differ from company to company.

    Initial Coverage

    • Part D policies have an initial coverage phase for benefits. The amount of this can vary depending on the company issuing the policy, but most plans have an initial coverage limit of around $2,840. The customer pays only a portion of this and Medicare Part D pays the rest. The out-of-pocket for the customer is approximately $942.50, with a $310 deductible. This initial coverage limit is based on retail costs, however, and not what the policyholder pays. Once your medications reach the initial coverage limit, the doughnut hole begins.

    The Doughnut Hole

    • Once your drugs total more than the initial coverage limit, Part D benefits cease entirely. This is the doughnut hole because, despite having insurance and paying premiums, customers receive no benefits for their medications. You must pay the total cost for all your prescriptions until you reach the point where you can claim catastrophic coverage. In most Part D plans, catastrophic coverage kicks in only after you spend another $3,610 yourself.

    Catastrophic Coverage

    • After you reach the amount that qualifies you for Part D catastrophic coverage, your prescription drug benefits resume. At this point, you are responsible for paying only 5 percent of the cost of your medications.

    Reforms of 2010

    • In 2010, Congress made an attempt to close the Part D doughnut hole. In that year, any Medicare beneficiary who reached the doughnut hole received a $250 payment to help them pay for their prescriptions. In 2011, customers who reach the doughnut hole began receiving a discount of 50 percent on name-brand drugs until they reach the catastrophic level.

Health Insurance - Related Articles