Understanding the Medicare Part D Donut Hole and how the Affordable Care Act impacts it

Donuts are a great sweet treat - unless you’re a Medicare Part D beneficiary. Medicare Part D beneficiaries have been dealing with the donut hole since the Medicare Part D program began in 2006. However, recent legislation through the Affordable Care Act has made your time in the donut hole a little easier to digest.

What is the Affordable Care Act?

The Affordable Care Act was passed in 2010 and is a comprehensive health care reform law, sometimes referred to as “Obamacare.” Some of the major goals of the ACA are: 

The Affordable Care Act also requires insurance plans to cover certain preventative care, which is why all commercially available vaccines are available to all beneficiaries through their Medicare Part B and D plans. 

What is the Medicare Part D donut hole?

The donut hole isn’t as sweet as it sounds when it comes to Medicare Part D prescription drug  coverage. The donut hole refers to a coverage gap most Medicare Part D beneficiaries are subject to each year. 

This means that once a certain spending threshold has been reached for covered medications, you will have to pay more out-of-pocket for your prescriptions until you reach the yearly limit. Once you reach the yearly limit, your plan will begin paying for covered drugs again.

Nervous about unexpectedly entering the donut hole? Your Medicare Part D drug plan will mail you an Explanation of Benefits (EOB) notice each month you fill a prescription, letting you know your progress towards meeting the donut hole threshold.

The Donut Hole is closing thanks to the ACA – but what does that really mean?

You may have heard that the Affordable Care Act is closing the Donut Hole. While this is true, it can also be a little misleading. 

In this case, closing doesn’t mean going away altogether. Instead, it simply means that the cost that Medicare beneficiaries pay is decreasing. 

Over the past 10 years, the percentage that Medicare beneficiaries pay in the donut hole annually has been shrinking, while the percentage your Medicare plan and the drug manufacturer pays has been increasing. 

For 2020, once you are in the Donut Hole, your plan will still cover a minimum of 5% of your brand name medication costs and you’ll also receive a 70% discount from the manufacturer. Medicare will also pay 75% of the cost of generic medications. Therefore, you will only be responsible for 25% of the cost for both brand-name and generic medications on your plan’s formulary while in the donut hole.

What is the threshold for the donut hole?

The donut hole threshold is predetermined annually and does not vary between Medicare Part D prescription drug plans. It also takes into account what you pay and what your plan pays toward covered medications.

For 2020, once you reach $4,020 you will enter the donut hole. 

While the threshold amount does not vary, each plan will have a different premium and expected monthly drug costs that will affect how quickly you enter and leave the donut hole. It is important to compare this information when choosing a plan. 

The Medicare Plan Finder Tool , provided by the U.S. Centers for Medicare & Medicaid Services, allows you to search your current medications and determine the retail cost, costs before and after you meet your deductible, and your costs while in and after leaving the donut hole. Discrepancies, though, have been found within the tool.
Working with a trusted Medicare advisor can make understanding this information easier and help you make the right choice when selecting a Medicare Part D prescription drug plan. Schedule a meeting with Plan Advisors team member to learn more about the Medicare Part D donut hole and how you can get the right plan for your needs and budget.

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