What is the Medicare Donut Hole?

Medicare's Donut Hole (aka the Coverage Gap) is a term that prompts curiosity or apprehension among Medicare beneficiaries. The cake donut is generally round with an empty center or hole. There is something to eat on both sides and nothing in the middle. This metaphorically describes a gap in a prescription drug plan's paying for drug coverage, with beneficiaries paying generally more for drugs than in other drug stages. Medicare's Donut Hole (Coverage Gap) is third of four stages of drug coverage that PDPs must include in their structure.

Medicare mandates that all beneficiaries have prescription drug coverage, which could be in the form of a stand-alone prescription drug plan for a monthly premium or embedded in a Medicare Advantage HMO or PPO. Beneficiaries may have other creditable drug coverage through their employer group, Veterans benefits, Federal Employee Health Benefits Program, CHAMPVA, TRICARE, or Indian Health Services. Medicare defines how the PDP and member will share the cost of prescription drugs. Medicare's phases of drug coverage describe who pays for the drugs and how much. These phases form the foundation of how drug plans work. The PDP must adhere to this structure to receive Medicare's approval annually.

In stage one, the Deductible Phase, the beneficiary bears the full cost of drugs until the deductible is satisfied. Medicare caps this deductible annually: plans may charge Medicare's full deductible, a lesser deductible, or none. If a PDP has no deductible, the next stage is the Initial Coverage Phase (Stage two.) Here both beneficiary and plan share the cost of drugs up to a threshold established annually by Medicare. This is the first side of our cake donut.

When the beneficiary and plan's share of the cost of drugs reach the threshold, the beneficiary enters the Donut Hole or Coverage Gap Phase (Stage three.) The beneficiary pays a percentage of the full cost of a generic. The same percentage applies to brand name drugs with the aid of a manufacturer's discount. The member, if taking expensive drugs, generally pays a higher cost for his medicine. When the beneficiary's costs reach Medicare's final threshold, relief is in sight. At the Catastrophic Stage, the plan pays the majority of the drug costs thereafter. The grateful beneficiary pays a much lower coinsurance for a generic or brand name drug. The last side of the donut tastes great!

Prescription drug plans are complex. To learn more about PDPs, consult www.medicare.gov or call 1-800-MEDICARE. (TTY users should call 1-877-486-2048) 24 hours a day/7 days a week.

Leah Sugar Kari, licensed insurance agent, specializes in showing Medicare eligible people their insurance options. Reach Leah for comments at (520) 484-3807 (TTY users dial 711) or leah@leahkarisolutions.com.