Top 4 Ways To Save Money Through The Medicare Part D Donut Hole

Updated: October 18, 2017 at 12:25 pm

Medicare part D donut holeIf you are close to Medicare and part D prescription drug eligibility, you may have heard of the “donut hole”. (If you are on Medicare now, then surely you have heard of the donut hole.) In our view, the “donut hole” refers to the “no man’s land” of part D Medicare prescription drug costs where you need to pay more of your share. In other words, your out-of-pocket costs are much higher if you enter the “donut hole”. Here in this article, we discuss the top 4 ways to save money through the Medicare part D donut hole.

What Is The Donut Hole?

As we mentioned, the “donut hole” in part D Medicare prescription drug plans is the coverage gap where you have to pay more of your share of prescription drug costs. You enter the “donut hole”, formally called the Medicare coverage gap, when the total part D Medicare prescription drug costs reach $3,750 (in 2018). This total includes what you pay, what your drug plan covers, and any manufacturer discounts. (It does not include your monthly premiums.) See the diagram below for a depiction.

Medicare Part D Donut Hole

In 2018, your maximum costs for your Medicare part D prescription drugs is 44% of the cost for generics and 35% of the cost for brand drugs. We will discuss further why we state “maximum” below.

Once you reach $5,000 (in 2018) of your personal, out-of-pocket costs (see right column above) with  Medicare part D drug costs, you will enter the more favorable catastrophic coverage. However, as you can tell, you will personally spend a lot of money to get there.

How Does The Donut Hole Work With Medicare Part D Prescription Drug Costs?

This is a question many new and current Medicare beneficiaries ask. As you can see from the diagram above, your prescription drugs cost sharing are in 4 levels:

#1 The Deductible

If your plan has one, you pay this amount 100%. Many plans have only a deductible on tier 3 through 5 drugs (brand and specialty drugs), while some have $0 deductibles, and others have the full deductible you need to pay ($405 in 2018).

#2 Initial Coverage

Once you paid your share of deductible (if your plan has one), you will enter the initial coverage stage. In this stage, you will typically pay a low (or no) copayment for generic drugs and a higher amount for brand and specialty drugs. You will pay less if your pharmacy is a preferred network pharmacy. We can’t stress enough that your pharmacy needs to be in a preferred network in order to maximize drug savings.

#3 Medicare Part D Donut Hole

Once the total Medicare part D prescription drug costs reach $3,750 (in 2018), you will enter the coverage gap (“donut hole”). Here, you will pay a higher share of generic and brand drugs.

#4 Catastrophic Coverage

Upon your out-of-pocket Medicare part D prescription drug costs of $5,000, you will enter catastrophic coverage. Here, you will generally pay the greater of 5% coinsurance or a $3.35 copay for generic drugs and the greater of 5% coinsurance or a $8.35 copay for brand and specialty drugs.

What Costs Are Included In the Medicare Part D Donut Hole (Medicare Coverage Gap)?

As we mentioned, but it bears repeating, the following contributes to you moving through the coverage gap (“donut hole”):

  • your share of the prescription drug costs (highest)
  • any third party made on your behalf
  • manufacturer discounts
  • Medicare/your plan’s share

Excluded costs include:

  • your premiums – you always have to pay
  • any over the counter drugs or vitamins
  • free samples provided by your doctor
  • drugs purchased outside of your part d prescription drug network

The Top 4 Ways To Save Money Through The Medicare Part D Donut Hole

Now that you have an awareness of how the “donut hole” / Medicare coverage gap works, we can illustrate some of the ways you can save money. Review the diagram above. You want to try to stay in the initial coverage stage. This means working with your doctor and selecting generic medication first before trying brand or specialty drugs.

#1 – Analyze Your Situation

If you are still working, near age 65, or older than 65 and still working, you have the prime opportunity to start analyzing your situation now. At some point, you will need Medicare. (Unless your company offers a retiree health plan and you enroll in that.) Do you take any generic drugs? Any brand drugs? While it is not 100% certain, hereditary conditions can inflict you. Are your parents or other family members take any generic or specialty drugs?

By analyzing your situation now, you can get a head start on how to manage your part D prescription drug costs.

#2 – Shop The Carriers…

The Medicare part D prescription drug market is very competitive. Carriers are wanting your business. They have developed certain formularies and pricing to attract certain Medicare beneficiaries.

Every year, the carrier rates change. Some go up, others go down. Carriers add drugs to their formularies. Some drugs change tier levels. Additionally, your own situation might change. Maybe you now need a specialty drug instead of a generic. Or, your doctor has put you on a generic instead of the brand drug. It is worth the time to shop and make sure you are receiving the best plan for your situation.

Additionally, some part D prescription drug carriers offer plans that help Medicare beneficiaries save money through the Medicare part D donut hole.

Medicare.gov offers a nice part D prescription drug cost estimator. Just input your prescription drugs and frequency, and the website will return the plans by cost in your area. It is always best to confirm the information those plans are indeed the lowest or meet your needs.

#3 – …And Make Sure Your Pharmacy Is A Preferred Pharmacy

Preferred pharmacies receive the best cost sharing opportunity for you. In many cases, preferred pharmacies have options for mail order drugs which usually come with a $0 copay. If you regularly take a prescription drug (a maintenance drug),  a mail order option could save you quite a bit of money. It pays to ensure your pharmacy is a preferred pharmacy. If not, then consider switching.

#4 – Research Manufacturer Discounts…And State Pharmaceutical Assistance

For certain brand and specialty drugs, a manufacturer may offer a discount for you. Sometimes, the drug could be free after their discount.

Additionally, many states offer pharmaceutical assistance to help residents pay for drug costs. Usually, assistance is based on a chronic condition and/or income levels. It is worth to check out if you feel you may qualify for assistance.

Conclusion

If you think you will be in the Medicare part D “donut hole”, don’t worry. We outlined ways you can save. Do you know what you need to do next? We work with nearly all of the major prescription part D Medicare carriers. We can help determine what will not work and what could work in your situation as we have done for many Medicare beneficiaries. Contact us for help.

 

 

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John

I am a CFP® Professional and have an MBA. I founded My Family Life Insurance to provide honest, trustworthy advice and economical insurance solutions to individuals, families, and business owners. Contact me if you have any questions. There is no risk! If I can't help you, you've learned a little more, and we'll part as friends. Seriously! Can your current agent say this?

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