What’s the “Donut Hole?”

One of the most often asked questions we get here in the office is “what exactly is the donut hole?”

Good question, and fully understanding the concept of the donut hole can influence your decision on which insurance company will work the best for you when it comes to prescription drug coverage (Medicare Part D).

The term “donut hole” is actually a gap in coverage that occurs when prescription drug costs reach a certain amount (which changes annually); at that point, the beneficiary becomes responsible for 100% of their drug costs until the total they’ve spent on the drugs reaches the out-of-pocket spending limit (which also changes every year).

Many beneficiaries then want to know why one company may be preferable over another one–which is a logical question, since the donut hole amount and the out of pocket spending limits are predetermined by CMS.

The answer lies in the drug formularies that each company comes up with every year. Some medications may be categorized as tier 2 drugs by one company, but tier 3 or 4 drugs (which are more expensive) by another one.

This makes comparing the costs associated with your prescriptions absolutely crucial when making your provider decision every year during the enrollment period.

Some good news re the donut hole: the donut hole is slated to become obsolete by 2020.