The “Donut Hole” is the nickname for the unusual model of coverage that Medicare Part D provides.
Most insurance plans are designed with the patient having financial responsibility for a front-end deductible and co-insurance, or percentage of the expenses of treatment, after meeting the deductible, until the total expenses exceed a “catastrophic” level. At that point, a catastrophic coverage takes over, with the health plan assuming total responsibility for any additional expenses. This chart shows the patient’s out-of-pocket expenses and what the plan pays in the traditional insurance model.
Example of Cost Share of Group Health Insurance Plan
Medicare D differs from this traditional model in that there is a coverage gap, known as a “donut hole” before catastrophic insurance can take over responsibility for payment. In 2009, the standard benefit included an initial $295 deductible. After meeting the deductible, the patient pays 25% co-insurance (25% of the total cost of covered Part D prescription drugs), up to $2,700. After the patient’s drug costs exceed $2,700, the patient must pay for the full cost of their drugs until the total out of pocket cost of their drugs reach $4,350. At this point, the patient is eligible for the “Catastrophic Coverage” benefit .This gap in coverage is known as the “Donut Hole.” If you qualify for Catastrophic Coverage, you will pay $2.40 for a generic or preferred drug and $6.00 for other drugs, or a flat 5% coinsurance (whichever is greater) for the rest of the year. You can see this large gap in coverage (the “Donut Hole”) illustrated in this chart.
*Chart source: Dave Winslow,COAAA, 2008
Why a Donut Hole?
You might ask why the Medicare D was designed with this “donut hole” which made it more complicated than a traditional plan. The “donut hole” was included to help lower the deductible and the co-insurance so that more seniors can benefit from Medicare D.
How do I Calculate my Expenses for the Donut Hole?
It is very important to know that not all of the money spent on drugs counts toward the out-of-pocket threshold for Catastrophic Coverage. The out-of-pocket expenses that count towards the threshold are called “True Out-Of-Pocket Expenses” or “TrOOP” expenses.
In general, TrOOP includes all payments for medications listed on your plan’s formulary and purchased at a Network, or participating, Pharmacy. TrOOP expenses also include your deductibles and formulary co-pays.
However, the following are not included in TrOOP expenses:
- The costs of drugs you buy outside of your formulary (in other words, drugs not covered by your plan),
- The costs of drugs not covered by Medicare Part D plans (for example, over-the-counter medication),
- The costs of drugs bought outside of the United States,
- Any costs paid by another insurance,
- Premiums paid to your Part D plan.
If you use a drug discount card, you should keep in mind that only the portion that the you pay out-of-pocket, not the amount paid by the discount card, can be applied toward your TrOOP spending threshold.
Getting Credit for Your TrOOP Expenses
Your Part D plan will be tracking your expenses while you are in the Donut Hole, so remember to always use a Network Pharmacy for your formulary drugs and show your membership card. You should receive a monthly Explanation of Benefits (EOB) from your plan which will show how much you have paid and how much the plan has paid each month. Your EOB should also how much you have paid in TrOOP expenses towards Catastrophic Coverage that year, so make sure that it is correct!
One thing to note: MyHealthCafe.com is in the process of developing a tool to help you track your expenses and calculate your donut hole.
Tags: Health Insurance, Medicare, Medicare Part D, Prescription Drugs, Senior Health