The donut hole is the gap in coverage for medicines for people who have Medicare Part D for prescription drug coverage. The donut hole is a temporary limit on what Part D will pay for medicines.
Here's how it happens:
Members pay for all medicines to reach a deductible. Before Medicare helps pay for any medicines, each year members must pay the full deductible.
Medicare shares medicine costs. The Medicare member starts by paying a percentage of the cost of medicines, with the Part D plan paying the rest.
A maximum amount is reached. When the costs reach a certain amount, coverage ends. That means the Medicare member has hit the donut hole. In 2013, the amount when coverage ended was about $2,970. That amount is the sum of how much the member paid and how much their Part D plan paid.
Members are in the donut hole. While in the donut hole in 2013, members pay 47.5% of the price for a brand-name drug. This is a 52.5% discount. Members pay 79% of the price for a generic medicine, which is a 21% discount.
Members have to reach a new maximum. Before the Part D plan starts to help pay for covered medicines again, the Medicare member must have used $6,733 for medicines in the same year. This amount includes what members pay and what the Part D plan pays. The most a member has to pay from the dollar amount is $4,750. This is called your out-of-pocket costs.
Even though members pay part of the medicines' costs with the donut hole discounts, the whole cost of a brand name counts toward the maximum spending limit. Only the amount you pay for a generic drug counts toward the maximum, though.
Medicare shares costs again. Once the member pays enough on meds to reach the second limit, the plan once again pays for most of the cost for covered medicines. Members either pay 5% of the cost of a drug or a copayment. Or they pay $2.65 for generic drugs and $6.60 for brand name drugs. Members pay whatever cost is higher.
When the Affordable Care Act passed in 2010, efforts started to be made to ease the burden of the donut hole. In 2013, members paid less for brand-name medicines. They'll keep paying less and less until 2020. At that time, the donut hole will no longer exist because there won't be gaps in coverage. Then members will pay 25% of the cost of their medicines until they reach a yearly out-of-pocket spending limit.