The Coverage Gap, also referred to as the “Donut Hole”, has caused a lot of confusion for many people. For many seniors affected by the Donut Hole, they don’t learn of its existence or potential impact until they one day go to the pharmacy to pick up their prescriptions, and are suddenly asked to pay way more than the normal copays they had been paying during previous visits to the pharmacy.
Let’s try to break it down as simply as possible:
The total cost of your drugs determines whether or not you will find yourself in the Donut Hole, so we need to first understand the total cost of drugs.
The total annual amount you pay for your drugs starts getting calculated each year on January 1st. This is referred to as the TrOOP costs, or True out-of-pocket costs.
TrOOP cost measures the TOTAL cost of your drug or drugs. This includes your copay plus however much your plan paid for the remaining balance, if any.
For example, let’s assume you have a particular prescription that has a sticker price of $500 - that is, it would cost you $500 to fill that prescription if you were paying cash, and not using insurance. However, you do have insurance. You have your Medicare drug plan or Medicare Advantage plan that includes drug coverage. Your plan allows you to get that prescription filled for only a $45 copay. In this situation, the TrOOP cost would still be $500. You paid $45 while your plan paid $455.
For 2016, if your TrOOP costs exceed $3,310, you will find yourself in the Donut Hole.
Let’s create an example to see how this plays out. Let’s say that you have the following prescriptions that you get filled at the pharmacy once per month:
Prescription A has a sticker price of $400 and you pay a $45 copay (brand name)
Prescription B has a sticker price of $100 and you pay a $10 copay (generic)
If these were the only two drugs you took and you had them filled regularly each month, here’s what your monthly pharmacy bill would look like:
January - $55
February - $55
March - $55
April - $55
May - $55
June - $55
July – More than $55, probably closer to $100
August – Around $238
Chances are, your pharmacist would be the one having to explain to you in July that you are in the Donut Hole on your drug plan, and that, no, nothing is wrong with your insurance plan!
Here is a running total of the TrOOP costs for each month:
January - $500
February - $1000
March - $1500
April - $2000
May - $2500
June - $3000
July - $3500 (not exactly, but we’ll just go with it)
Notice that by July, you were over the $3,310 threshold for entering into the Donut Hole, so you would pay partial Donut Hole costs. In August, you would pay full Donut Hole costs.
So, let’s take a look at what your drugs costs in the Donut Hole. Instead of your drug plan copays for your prescriptions, while in the Donut Hole, you simply pay a percentage of your prescriptions instead.
If your prescription is a generic medication, you pay 58% of the sticker price. If your prescription is a brand name medication, you pay 45% of the sticker price.
If and when your annual TrOOP reaches $4,850, you are out of the Donut Hole and into Catastrophic Coverage. In Catastrophic Coverage, you only pay a maximum of 5% of the sticker price for your drugs.
There’s one more confusing calculation that makes it a little tricky to predict if and when you will be out of the Donut Hole (reaching $4,850 TrOOP). Instead of receiving FULL CREDIT for TrOOP while in the Donut Hole, you only receive partial credit because the drugs are discounted. To put it simply, the TrOOP for generics is 58% of the sticker price and the TrOOP for brand name drugs is 95% of the sticker price. In other words, the TrOOP cost for a drug would normally be its full sticker price, but that’s not the case in the Donut Hole.
So there you have it. Sadly, that’s about as simply as it can be explained without leaving out glaringly important details.