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Whether you have a Part D Prescription Drug plan or Medicare Advantage plan, you have surely heard of the coverage gap or donut hole.  If you are very lucky, it hasn’t affected you much, but for a lot of Medicare enrollees, the coverage gap can be very scary.  Their prescription costs significantly increase which can be devastating to members on a tight, fixed budget. So, let’s discuss the coverage gap.

If you reach the Coverage Gap at this phase of coverage (for 2018, the retail value of your prescriptions is over $3,750), you are responsible for a larger amount of your prescriptions (for 2018, $5000 is considered the exit point of the coverage gap).  Prior to 2011, members in the coverage gap paid 100% of the cost of their medications.  Since 2015, the percentage you are responsible for in the coverage gap is shrinking as the government is working to close it.  For 2018, the amount the plan paid increased from 49% to 56% for generic drugs. For brand drugs, the amount the plan paid is 15%, with a Drug Manufacturer Discount of 50% in 2018.

First, it is important to understand the phases of the drug coverage when you are on Medicare.  There are four of them, each of them potentially impacting the cost of your prescriptions.

Phase 1 – Deductible Phase (if your plan has a $0 deductible, you skip this phase)

In this phase, members usually pay 100% for their medications.  Some plans do offer coverage for low cost prescriptions in this phase.  The retail value of your prescriptions in this phase counts toward your Coverage Limit (for 2018, the $3750 you are allowed before entering the coverage gap).  The standard initial deductible for 2018 is $405.

Phase 2 – Initial Coverage Phase

After you meet your $405 deductible, you enter the initial coverage phase.  During this phase, the plan will share the costs of the medications with you.  You will pay a copay or a co-insurance percentage for your medications, and the carrier will pay the difference.  When the retail value of your medication reaches $3750, NOT THE AMOUNT YOU HAVE PAID, you enter the coverage gap.

Phase 3 – Coverage Gap (Donut Hole)

In 2018, while in the coverage gap, you pay 44% for generic drugs, and 35% for brand drugs. You remain in the coverage gap until your total covered drug spend is $5000 on your prescriptions.

Phase 4 – Catastrophic Coverage Phase

Once you exit the coverage gap, you enter the catastrophic phase.  In this phase, you pay the greater of 5% or $3.35 for generic drugs, and the greater of 5% or $8.35 for non-generic drugs.

Though everyone has the same phases of coverage, not everyone will have to enter the coverage gap.  And once in it, not everyone will be able to make it to the catastrophic phase.  Some people enter the coverage gap after the first prescription.  This is why it is so important to know exactly how your prescriptions are covered.  Being informed can help you to expect and plan for the changing costs of your medications throughout the year.

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