Cutting Costs While in the Medicare Donut Hole
September 28, 2016 | Enjoying Retirement
The cost of prescription drugs can pose a challenge for older Americans living on a fixed income.
Exacerbating matters is the sticker shock people with Medicare prescription drug coverage (Part D) encounter when they enter a coverage gap known as the “donut hole.” While in the coverage gap, you pay out-of-pocket for your medications (up to a yearly limit), and then your drug plan starts paying again.
Thanks to reforms under the Affordable Care Act, the coverage gap will continue shrinking until it completely disappears by 2020. In the meantime, understanding how the coverage gap works can help you budget for those months you pay more to fill a prescription. And while the cost of medications can quickly add up while you’re in the donut hole, there are many ways to control expenses.
First, here’s how the Medicare Part D coverage gap works in 2016.
- You enter the coverage gap after you and your drug plan combined have spent $3,310 on covered drugs.
- Once you reach the coverage gap, you receive a 55 percent discount on brand-name drugs and a 42 percent discount on generic medications. That means you pay 45 percent of the cost for brand-name drugs and 58 percent of the cost for generic drugs. The discount on covered brand-name drugs applies when you buy them at a pharmacy or order them through the mail.
- The coverage gap remains in effect until your out-of-pocket costs for covered prescription drugs exceed $4,850. But the amount that goes toward reaching that limit differs for generic and brand-name drugs.
- If you buy a brand-name drug, the 45 percent of the retail cost you pay is added to the 50 percent covered by the drug manufacturer. Therefore, 95 percent of the retail cost goes toward meeting the out-of-pocket limit to get out of the coverage gap. So if you think your costs will exceed $4,850, you may want to consider buying brand-name drugs to get out of the coverage gap more quickly.
- With generic drugs, you pay 58 percent of the retail cost and receive the same 58 percent credit toward your out-of-pocket cost limit. So if you don’t think you will exceed $4,850 to get out of the donut hole, buying generic drugs, which are typically less expensive, may be a better option.
- Once you leave the coverage gap, you get “catastrophic coverage.” With catastrophic coverage, you pay $2.95 per month for generic drugs and $7.40 per month for brand-name products or 5 percent of the retail cost—whichever amount is higher.
Speak with your doctor about using a generic drug rather than the brand-name version whenever possible. Generic drugs cost 80 percent to 85 percent less, on average, than brand-name products, according to the U.S. Food and Drug Administration. If your doctor recommends a new medication, ask for a 10- to 14-day supply of samples to see if you tolerate the drug before spending money on a month’s supply.
Online sites such as Optimizerx.com and InternetDrugCoupons.com offer coupons for prescription drugs. Some drug manufacturers also offer discount coupons or a free 30-day trial. Compare prices at pharmacies in supermarkets, retail stores, wholesaler stores, online and via mail order. Many pharmacies offer discounts for ordering a 30- or 90-day supply of medication.
Check out AARP’s prescription discount program, which offers assistance to pay for drugs not covered by insurance. Some pharmaceutical companies have patient-assistance programs to help people who are uninsured or have limited incomes. Visit the company’s website or check out RxAssist.org and NeedyMeds.org for information about assistance programs. Medicare beneficiaries with limited incomes may qualify for Extra Help, a government program that assists with the costs of drug coverage plans.
Reviewing your Medicare Part D plan options annually during the Medicare open enrollment period (typically mid-October to mid-December) can also yield big savings on prescription drugs. To choose the most cost-effective plan, look at the total cost for premiums, deductibles, out-of-pocket expenses and copayments/coinsurance. Make sure your medications are covered by the plan.
Industry experts expect that the cost of brand-name and generic prescription drugs will continue to increase in coming years. That means people living on fixed incomes must remain vigilant about how they spend their health care dollars. Understanding how the Medicare prescription coverage gap works, though, will allow you to plan ahead and spend wisely.