The following questions are among those asked during AARP’s webinar series about the new health care law. Additional information about the health care law and Medicare is available in AARP's fact sheet series about the new health care law.
The Health Care Law and the Medicare Part D “Doughnut Hole”
Q: I want to be sure I understand the "doughnut hole." Could you tell me how it works?
A: You can choose to purchase "Part D" prescription drug coverage from Medicare-approved insurance companies. Under current law, you pay your monthly premiums and an annual deductible, and then a co-pay of about 25 percent for each prescription drug.
In 2011, when your total drug costs (i.e., what you and your plan have paid during the year) exceed $2,840, you will fall into the coverage gap, or the "doughnut hole."
During this gap in coverage, you continue to pay your premiums. But you also pay the full price for your drugs until your out-of-pocket costs are high enough that you qualify for what is called catastrophic coverage. (In 2011, this amount is $4,550.)
After reaching the $4,550 mark, you are responsible for only 5 percent of your prescription drug costs for the rest of the year. The health care law gradually narrows the doughnut hole until it disappears in the year 2020.
Q: How is the doughnut hole going to close?
A: The gap will gradually narrow until it disappears in 2020. If you reach the doughnut hole in 2011, you'll get a 50 percent discount on brand-name prescription drugs and a 7 percent discount on generic prescription drugs while you are in the coverage gap. This means that, unlike in 2010, you will not have to pay 100 percent of the cost of all your drugs while you are in the coverage gap. Depending on the drugs you take, you will be paying only half of what you had to pay in 2010.
But even after the gap is gone, everyone on Part D will still have the same level of cost sharing — about 25 percent — from the time you meet your deductible until the time you reach catastrophic coverage.
Catastrophic coverage remains in place even after the coverage gap goes away. Catastrophic coverage starts in 2011 when your total out-of-pocket drug costs have climbed to $4,550. After that point, you only have a 5 percent co-pay.
Q: Is everyone on Medicare getting a rebate check?
A: This year, only those with Medicare Part D who fall into the coverage gap and are not receiving the low-income subsidy will receive a onetime tax-free check for $250 to help with their drug costs.
Q: Will there be a rebate check offered in 2011 if I fall in the doughnut hole?
A: No, this benefit was only available in 2010. However, starting in 2011 if you reach the doughnut hole, you’ll get a 50% discount on brand-name drugs and a 7% discount on generic prescription drugs while you are in the coverage gap..
Q: I think I’m going to continue to spend a lot on drugs even after you tell me that the doughnut hole closes in a few years. My question: Will there be some level that I reach where I’ll only have to pay 5 percent for my drugs? In other words, will there still be catastrophic coverage even after the doughnut hole closes in 2020?
A: Yes, even after the doughnut hole disappears in 2020, there will be a level where your out-of-pocket costs will be high enough that you will qualify for catastrophic coverage. Here’s how it will work:
- As now happens, most people with Medicare Part D will pay a deductible before the plan pays anything toward their drug costs; this means the beneficiary pays 100 percent of the deductible.
- After the deductible has been paid, but before the catastrophic cap is reached, the beneficiary will pay approximately 25 percent of the costs of the drugs.
- After the catastrophic cap is reached, the beneficiary will pay 5 percent of the prescription drug costs for the remainder of that year.
The good news is that Medicare will continue to have important protections for people who have very high drug costs.