Leave it to Congress to come up with terms like \”donut hole\” when crafting legislation, even dealing with the sacrosanct Part D dealing with Medicare. When details started to emerge from the \”process\” of grinding out Part D, various items started to leak out and one of them was the \”donut hole\”. It would later come to be fairly despised and even later on, it would be partially addressed at a later date as part of Health Reform. It\’s important to understand what it is and how it affects what you may pay out of pocket for prescription drugs if you have Part D medication coverage through Medicare. So let\’s dive into the donut hole to find out what we\’re in for.

To take a step back, what is Part D? Part D is the new (relatively) part of Medicare which added the much needed medication benefit to traditional Medicare. When original Medicare was created, medication wasn\’t nearly the cost consideration it is today. There are new meds coming out for more exotic and serious health issues which can run 10\’s of thousands of dollars. Yes, that\’s not a typo. 10\’s of thousands per yer for a given medication. When original Medicare was drafted, they main considerations were hospital (facility and testing) and physician charges. Part D was a well-needed addition to original Medicare to address the increasingly important (and expensive) cost of out-patient medications. So how does Part D work and what is the donut hole?

Part D was crafted to be standardized by Medicare and provided by private carriers. There were certain requirements or basic benefits that every plan must offer. Part of this calculation was the donut hole. Essentially, Part D was created with 3 tiers. The first tier was an initial benefit that you might receive right away or after a deductible depending on the plan design. This would continue until a certain total amount of medication expense, after which, you (the Medicare Part D enrollee) would be responsible for the full medication costs. This is the second tier and the critically named \”Donut hole\”. You would pay this amount for a period of time and then move into the 3rd tier of the Part D benefits or \”catastrophic\” section where the policy would kick back in. This is to protect a person from very expensive medications costs that would bankrupt them. The concept of the donut hole was designed to help mitigate the cost of the new Part D benefit. Originally, backers of Part D went along with donut hole assuming that they would be able to remove it at a later date which turned out to be a good strategy.

The donut hole was later revisited in the Health Reform process as part of a review of Medicare in which the donut hole gap will gradually be eliminated by 2020. There are discounts and some rebates available within the donut hole depending on the type of medication. Some Part D plans even address the donut hole so it\’s important if you know you have sizable medication costs to investigate how the plans differ in this regard. The coverage may only be for generics. To some extent, we\’re only making a decision for the remainder of the calendar year since we can change Part D plans during the open enrollment period each year.

Most seniors and enrollees on Part D will not hit the donut hole but if you\’re one of those people with larger medication costs, make sure to investigate which plan best addresses the donut hole. Again, this will be less of an issue going forward as the hole is slowly being eliminated.

Dennis Jarvis is a licensed insurance agent concentrating on medicare supplement insurance.