Countdown to Retirement: The “Donut Hole” in Prescriptions Plans PLUS 5 ways to prepare?

My First Meeting with the "Donut Hole"

I remember standing in line at my local pharmacy a couple of years ago to get a prescription filled and there was an older woman ahead of me almost in tears and a look of disbelief on her face. Of course, I wanted to know what was causing her so much pain and all I heard was the cashier behind the counter saying to her in a soft voice “you must be in the donut hole”. The woman left without her prescription and for the life of me, I had no idea what had just happened.

Sitting in the seminar two months ago I heard the same phrase again “the donut hole” only this time the lady at the front of the room with her clicker for the PowerPoint was going to explain what this term meant. Finally, I would get an explanation. Well, let me tell you, I was more confused after she finished then I was before she hit the first slide of her presentation.

I decided to do my own research and talk to someone who might be able to explain what the donut hole is and what it means to seniors concerning their prescription plan. You can get private insurance to help cover the donut hole, but it can be very expensive. Some people are lucky if their company has continued to cover them after they retired and has filled in the gap but for most of us, we are on our own.
I am going to try and explain this in simple terms as it was explained to me (and I am grateful to my advisor who spelled it out so well).

The Donut is made up of 3 Sections

• 1 is the $0-$3,750
  • This section is the total retail cost of your medication until you reach the $3,750 threshold. Then you pass into section 2 the “donut hole”.
• 2 is the “donut hole” $0 - $5,000
  • The “donut hole” is the combination of what the drug manufacturer will pay plus your out-of-pocket expenses till $5,000 has been accumulated. When this total is met you move into section 3 the catastrophic coverage.
• 3 is the catastrophic coverage
  • Once your out-of-pocket expenses reach $5,000 from the “donut hole” the catastrophic coverage takes over and then you begin to pay only a small percentage of your expenses.

 

Breakdown of each Section

The first thing you want to do is go to your pharmacist and ask what the cost of each of your medications are or go online, not the deductible you pay but the actual cost to the pharmacist. For example, I have 4 medicines I take daily. I looked each one up by name to find out the cost per month total of all 4 drugs. It came out to $50, so I am fortunate that I can take the generic of my brand medications. The brand name total was much, much higher. According to the structure of the prescription plan for seniors, I am lucky I will not reach the donut hole at least not on what I am taking currently.

So here is the breakdown at least for this year, it changes almost every year.

• Section 1 has a total amount of $3,750 in one calendar year. This is not the co-payment that you pay at the time you pick up your prescription it is the total drug amount that the pharmacy pays for your drug. So, if you pay a $20 co-payment but the pharmacy pays $300 for your drug that $300 goes against the $3,750. Imagine you have 4 medications that are $300 each that would be $1200 a month and you would be in the donut hole by April because 3 X $1,200 = $3,600 with $150 to carry over into April which is why the amount is $525, not $600.

 

• Section 2 is $0-$5,000. In simple terms between what you pay out-of-pocket and the dollar amount that drug manufacturer contributes monthly for your drug will continue till the $5,000 has been reached, however many months it takes till the end of the year. In the Example above, the drug manufacturer is going to contribute 50% of the $1,200 monthly charge for your drug and you are responsible to pay the other 50% (your out-of-pocket). This can be devastating if you are not prepared for this gap in coverage. In this example, you start to come out of the “donut hole” in August.

• Section 3 is called the Catastrophic phase. At this point the $5,000 amount has been reached, you have now entered the catastrophic phase and will only pay a small percentage of the monthly copay for your prescriptions. Once January comes the process starts all over again.

The example above is only a visual to help with the explanation. Your actual costs will vary depending on the percent your drug manufacturer covers, your copays that you may have paid while in the first section reaching the $3750 amount, and the total cost of your medication.

5 Ways to Prepare

Actions you can do now before you must decide on prescription plans if you prepare early.

1. 1. 1. 1. Find out the total cost of the medications you are taking.
            • Go online to look them up
            • Ask your pharmacist
         2. Ask your pharmacist about different prescription plans they may help guide you to a plan that aligns with the medication you are currently taking.
         3. Ask your doctor if you can try generic for any brand drugs you are currently taking.
            • Some pharmacies are cheaper check out Walmart, Costco, Walgreen just to mention a few. Shop around!
         4. If you are still working and are covered by work insurance, make an appointment to discuss if they have any recommendations on how you can lower the cost of your medication before you must sign up for Medicare Part D or an Advantage Plan
         5. Inquire about the cost of prescription gap insurance that may aide in your out-of-pocket expenses.

 

I wish I had some humor I could sprinkle into this article but at least I hope this has been helpful. Please be aware you can change your plan during the open enrollment window. Also, since the government is working to close the gap in the out-of-pocket expenses for seniors, check with the Medicare office or the Insurance company you have your Advantage plan through on Federal changes before you change your plan during open enrollment. My only advice is to be informed. Talk to agencies that will not profit from any decisions you might make about your insurance that you choose.

Next Month: I think I will explore the discounts that are offered to people my age and pass them along. 

Be sure to read the September and October editions of my Countdown to Retirement