Paying Less for Drugs in the Part D 'Doughnut Hole'

Does the discount apply to all Part D drugs?

Under the new law, drug manufacturers must provide the doughnut hole discounts on all their brand-name and biologic drugs as a condition for them being covered under the Part D program as a whole. According to Medicare officials, the manufacturers of more than 99 percent of the brand-name drugs used by Medicare beneficiaries have agreed to provide the discounts.

However, if one of your drugs is made by a manufacturer that declines to participate in the discount program, this means that your Part D plan won't cover it at all — not in the initial and catastrophic periods of coverage, not in the doughnut hole, and not in the Extra Help program.

Do the discounts mean it will take me longer to get out of the doughnut hole?

No. The limit on out-of-pocket costs that gets you out of the gap is still in effect — $4,550 in 2011. But the calculation is different. What now counts toward the limit is everything you spent on drugs from the beginning of the year — your out-of-pocket costs (deductible and copays) during the initial coverage period and whatever you spent on drugs in the doughnut hole — plus the 50 percent discount on brand-name and biologic drugs provided by the manufacturers. The discounts are considered to be out-of-pocket costs even though you didn't pay for them. So if the total amount of all these components is high enough, you reach catastrophic coverage as quickly as you would have done without the discounts.

Example : You go to the pharmacy to fill a 30-day prescription for a brand-name drug while in the doughnut hole. The full price of the drug is $100, plus a $2 dispensing fee. The manufacturer's discount is applied, bringing the price down to $50. You pay $50 plus the $2 dispensing fee. The discount does not cover this fee. But the whole amount of $102 (the full price of the drug plus the dispensing fee) counts toward getting you out of the doughnut hole.

However, the discount on generic drugs (7 percent in 2011) that is provided by the government does not count toward the doughnut hole limit.

Also remember that, as in all previous years, what you spend on drugs in the doughnut hole only counts toward the limit if you buy them through your plan and from a pharmacy in your plan's network, except in emergencies and a few other circumstances that Medicare allows.

Next: What if my plan already provides coverage in the gap? >>