By Home Media
MarketWatch has highlighted these products and services because we think readers will find them useful. This content is independent of the MarketWatch newsroom and we may receive a commission if you buy products through links in this article.
If you’re already enrolled in Medicare, you’ve probably heard a lot about the Part D donut hole . You may have even heard it closed as of January 1, 2020. But what does that mean for your prescription drug costs this year?
Unfortunately, closing the donut hole doesn’t mean your medications will be free once you reach the coverage gap. It does mean you’ll pay a smaller share of prescription drug costs once you’re in the donut hole, compared with prior years.
There are four stages of Part D prescription drug coverage:
When Medicare Part D was first introduced in 2006, you and your insurance company each had different payment responsibilities during each of these four stages. In the deductible stage, you paid 100% of your medication costs until you met your deductible. You and your insurance company shared the cost of prescription medications in the initial coverage stage until you reached a spending limit set by Medicare.
Once you crossed that spending threshold, you officially entered the donut hole and were once again responsible for 100% of your medication costs until a second threshold was met. At that point, catastrophic coverage kicked in and your insurance company paid the bulk of your medication costs.
RELATED: To learn more about Medicare costs and coverage, call: 844-259-6504 .
When the Affordable Care Act (otherwise known as Obamacare ) was passed, it included a 10-year plan to gradually close the donut hole. Beginning in 2011, both the insurance company and the drug manufacturers were required to pay a share of the cost in the form of prescription drug discounts once a beneficiary entered the donut hole.
As of January 1, 2020, drug costs during the coverage gap are paid in the following way:
You enter the donut hole once you and your Part D prescription drug plan hit a predetermined spending limit set by Medicare each year. Fewer than 10% of Part D plan members enter the coverage gap each year .
As of 2020, the stages of Part D coverage look like this:
You might be wondering how the donut hole can be closed when you still have to pay 25% of your prescription drug costs .
Under Part D rules, plan members are responsible for 25% of their drug costs during the initial coverage stage. Before the Affordable Care Act closed the donut hole, members paid 100% during the coverage gap.
Now plan members pay 25% across both stages of coverage . In other words, the cost gap between initial coverage and the donut hole has now disappeared, effectively closing the donut hole.
Although you are technically responsible for 25% of drug costs in both stages, most people pay more for medications in the coverage gap. This is because most insurers use set copayments instead of 25% coinsurance during the initial coverage stage.
Here’s a hypothetical situation showing how that might look:
There’s good news for Medicare beneficiaries who take insulin to manage diabetes. The Trump administration changed the way drug manufacturer discounts are calculated on insulin. Under the new rules, the drug manufacturer pays a higher portion of insulin costs, ultimately capping the copayment on insulin drugs at $35 .
The new $35 copayment applies at all stages of coverage . This means insulin-dependent diabetics will not pay more than $35 for insulin , even before they meet their deductible, and while they are in the donut hole.
The new benefit is only available in Part D plans that follow the new Senior Savings Model, although the administration says most plans and drug manufacturers are participating. You can search for participating plans using the Medicare Plan Finder , then enroll in one during the 2020 Annual Election Period.