DONUT HOLE: WHO PAYS WHAT UNDER MEDICARE PART D DRUG PLANS IN 2021

You might be familiar with the acronym CMS, Centers for Medicare & Medicaid Services.  CMS is the federal agency that administers Medicare.  Annually, they revise the parameters for the standard drug Medicare Advantage and Part D plans to account for increased prescription drug costs.  The parameters include the four phases of a Medicare drug plan- deductible, initial coverage phase, coverage gap (or donut hole), and catastrophic coverage.  Depending on what medications a Medicare beneficiary is prescribed will depend on how many phases one might enter, varying the costs of prescriptions throughout the year.

The first phase of a Medicare drug plan is the Deductible Phase, this is the amount one must pay each year for prescriptions before a plan pays its share.  Deductibles vary between plans, the upper limit for 2021 is $435.  Not all plans have a deductible and not all medications are subject to the full drug cost in this phase. 
Once the deductible phase is met, a beneficiary enters the Initial Coverage Phase and pays a copayment or coinsurance for covered drugs.  The amount paid will depend on if it is a generic or brand name, tier classification, and a plan’s drug formulary.  This phase continues until a total of $4,130 (2021) is spent by the beneficiary and the drug plan.

The Medicare drug Coverage Gap phase (or “donut hole”) was officially closed in 2020, but that doesn’t mean people won’t pay anything.  Entering this phase, a beneficiary will pay a co-insurance of 25% of the full cost of a drug for generic and brand name prescriptions.  The insurance company and drug manufacturers are responsible for the other 75%.  It is important to know if or when and how much you might have to pay for prescriptions during this phase. 

Once $6,550 (2021) has been reached, the beneficiary enters the Catastrophic Coverage phase.  During this phase, copays or coinsurance significantly lower for the for remainder of the year.  Drug costs are now a co-insurance of 5% of the cost for each prescription or $3.60 for generics and $8.95 for brand-name drugs, whichever is greater. The other 95% of the costs are covered by the plan and government.  
Medicare plans keep track of how much money is spent out of pocket for covered drugs and progression through coverage phases and should appear in your monthly statements.