Medicare Part D coverage gap
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The Medicare Part D coverage gap (informally known as the Medicare donut hole) is a period of consumer payment for prescription medication costs which lies between the initial coverage limit and the catastrophic-coverage threshold, when the consumer is a member of a Medicare Part D prescription-drug program administered by the United States federal government. The gap is reached after shared insurer payment - consumer payment for all covered prescription drugs reaches a government-set amount, and is left only after the consumer has paid full, unshared costs of an additional amount for the same prescriptions. Upon entering the gap, the prescription payments to date are re-set to $0 and continue until the maximum amount of the gap is reached: copayments made by the consumer up to the point of entering the gap are specifically not counted toward payment of the costs accruing while in the gap.
In 2006, the first year of operation for Medicare Part D, the donut hole in the defined standard benefit covered a range in true out-of-pocket expenses (TrOOP) costs from $750 to $3,600. (The first $750 of TrOOP comes from a $250 deductible phase, and $500 in the initial coverage limit, in which the Centers for Medicare and Medicaid Services (CMS) covers 75 percent of the next $2,000.) In the first year of operation, there was a substantial reduction in out-of-pocket costs and a moderate increase in medication utilization among Medicare beneficiaries, although there was no evidence of improvement in emergency department use, hospitalizations, or preference-based health utility for those eligible for Part D.
The dollar limits increase yearly.
The following table shows the Medicare benefit breakdown (including the donut hole) for 2009. For 2010, the total TrOOP increased to $4,550 before catastrophic coverage began.
- "Total drug spend" represents the actual cost of the drugs purchased, factoring in any Medicare discounts.
- "TrOOP" (true out-of-pocket expenses) represents the amount of their own money that the patient has paid.
- The donut hole is shown below in grey.
2009 Medicare Part D payments
|Total drug spend||TrOOP||Out-of-pocket cost||Portion covered by Medicare|
|$0–$295||$0–$295||Deductible is out-of-pocket||No Medicare coverage of costs|
|$295–$2,700||$295–$896.25||25% out-of-pocket||75% covered by Medicare|
|$2,700–$6,154||$896.25–$4,350.25||All costs are out-of-pocket||No Medicare coverage of costs|
|over $6,154||over $4,350.25||5% out-of-pocket||95% covered by Medicare|
The structure defined above is the benefit structure defined by Medicare, and from a health-plan perspective defines the amount of money that CMS will reimburse to health plans for covering prescription drugs. Individual health plans may choose to offer alternative benefit structures, generally with higher premiums, that either reduce or eliminate the donut hole.
Individuals identified as "dual eligible" by CMS are not subject to the donut hole, as their prescription coverage is fully subsidized.
With the passage of the Patient Protection and Affordable Care Act of 2010, people whose drug expenses took them into the donut hole received a $250 rebate within three months of reaching the coverage gap to help with payments. The United States Department of Health and Human Services began mailing rebate checks in 2010. By the year 2020, the donut hole will be completely phased out.
Impact on Medicare beneficiaries
The U.S. Department of Health and Human Services estimates that more than a quarter of Part D participants stop following their prescribed regimen of drugs when they hit the donut hole.
Every Part D plan sponsor must offer at least one basic Part D plan. They may also offer enhanced plans that provide additional benefits. For 2008, the percentage of stand-alone Part D (PDP) plans offering some form of coverage within the donut hole rose to 29 percent, up from 15 percent in 2006. The percentage of Medicare Advantage/Part D plans (MA-PD) plans offering some form of coverage in the coverage gap is 51 percent, up from 28 percent in 2006. The most common forms of gap coverage cover generic drugs only.
Among Medicare Part D enrollees in 2007 who were not eligible for the low-income subsidies, 26 percent had spending high enough to reach the coverage gap. Fifteen percent of those reaching the coverage gap (four percent overall) had spending high enough to reach the catastrophic coverage level. Enrollees reaching the coverage gap stayed in the gap for just over four months on average.
According to a study done in 2007, premiums for plans offering gap coverage are roughly double those of defined standard plans. The average monthly premium for stand-alone Part D plans (PDPs) with basic benefits that do not offer gap coverage are $30.14. The average monthly premium for plans that do offer some gap coverage is $63.29. In 2007, eight percent of beneficiaries enrolled in a PDP chose one with some gap coverage. Among beneficiaries in MA-PD plans, enrollment in plans offering gap coverage was 33 percent (up from 27 percent in 2006).
The 2010 Health Reform bill (Patient Protection and Affordable Care Act) began to address the coverage gap by creating discounts on brand-name and generic drugs purchased within the gap range. Between now and 2020, the gap will gradually be closed to a point where it is completely eliminated.
In 2013, the coverage gap starts at $2,970. Drug manufacturers pay 50 percent on covered brand-name drugs, but the entire cost of the drug is counted towards the amount needed to get out of the coverage gap which is $4,750.
- Liu FX, Alexander GC, Crawford SY, Pickard AS, Hedeker D, Walton SM (2011). "Impact of Medicare Part D on Emergency Department Use, Hospitalizations, and Preference-based Health Utility". Health Services Research 46: 1104–1123. doi:10.1111/j.1475-6773.2011.01273.x. PMID 21609328.
- Joyce, Brian; Lau, Ph.D., Denys (Winter 2009). "Medicare Part D Prescription Drug Benefit: An Update" (PDF format). Buehler Center on Aging, Health & Society Newsletter (Northwestern University). Volume 22, Number 2. Retrieved December 26, 2012.
- Claffey, Jason (August 14, 2010). "Medicare 'Doughnut Hole' Checks in the Mail". Foster's Daily Democrat. Retrieved December 26, 2012.
- "Closing the Coverage Gap—Medicare Prescription Drugs Are Becoming More Affordable" (PDF). CMS. January 2015.
- Hoadley, Jack; Thompson, Jennifer Thompson; Hargrave, Elizabeth; Merrell, Katie; Cubanski, Juliette; Neuman, Tricia (November 2007). "Medicare Part D 2008 Data Spotlight: The Coverage Gap" (PDF format). Kaiser Family Foundation. Retrieved December 26, 2012.
- Hoadley, Jack; Hargrave, Elizabeth; Cubanski, Juliette; Neuman, Tricia (August 21, 2008). "The Medicare Part D Coverage Gap: Costs and Consequences in 2007" (PDF format). Kaiser Family Foundation. Retrieved December 26, 2012.
- cms.gov, the official website of the Centers for Medicare and Medicaid Services
- Medicare at cms.gov
- Medicare.gov — the official website for people with Medicare
- TheMedicareForum.com, an online-community Medicare Forum. For anyone who needs help understanding Medicare or has questions about Medicare.
- How Stuff Works – Medicare