Understanding how Medicare processes and plans work can take you some time, and more often than not, many people are left confused. This article will look at the Medicare Part D plans for 2021, as released by the Centers for Medicare and Medicaid Services (CMS). We’ll also breakdown the coverage gap, popularly known as the “Donut Hole,” to give you a firm grasp of the Part D plan.
Medicare Part D Plans Changes from 2020 to 2021
During the Part D plan’s deductible phase, you pay for the full cost of your prescription medications until you hit the plan’s deductible amount. The initial deductible amount will be $445 in 2021 from $435 in 2020. Once you reach this amount, you enter the Initial Coverage phase.
Initial Coverage Limit (ISL)
Once in the Initial Coverage phase, your plan will pay for 75% of your medications costs, and you’ll pay the remaining 25%. This goes on until the total cost of your medications hits the set Initial Coverage Limit. In 2021, the ISL will rise to $4, 130 from $4,020 in 2020.
Out-of-Pocket Threshold (TrOOP)
Once your drug costs exceed the set ISL by your Medicare Part D plan ($4,130 in 2021), you enter the coverage gap or the donut hole. You stay in the donut hole until you reach the out-of-pocket limit, which serves as your donut hole exit point. In 2021, the TrOOP is set to rise from $6,350 in 2020 to $6,550. From the donut hole, you enter the catastrophic coverage where your plan pays for 95% of your medications for the rest of the year.
What is the Medicare Coverage Gap?
In 2006 at the launch of the Medicare Part D program, the coverage gap was included in a bid to get the program beneficiaries to find cheaper medications. This would cut the spending of both the consumers and the insurers. In the coverage gap phase, Medicare Part D beneficiaries would get less discounts for both brand-name and generic drugs. Hence, the out-of-pocket cost was higher in the donut hole.
How the Coverage Gap Works?
When the Affordable Care Act was passed in 2010, this coverage gap has narrowed significantly over the years. For instance, in 2015, the out-of-pocket cost in the donut hole was 45% and 65% for brand-name and generic drugs, respectively, compared to the fixed 25% in 2020.
To accelerate beneficiaries out of the donut hole into the much cheaper Catastrophic Coverage, the Bipartisan Budget Act (BBA) of 2018 was passed. Before the BBA, pharmaceuticals paid 50% of the total 75% discount on brand-name drugs, and the Medicare Part D plan paid the remaining 25%. Since TrOOP is given by the total brand-name discount paid by the pharmaceuticals (50%) plus your out-of-pocket costs (25%), beneficiaries would get 75% credit towards their TrOOP limit.
However, after the BBA was signed into law, drug manufacturers pay 70% of the total 75% brand-name discount while your Medicare Part D plan pays the remaining 5%. This means that you get 95% credit towards your TrOOP limit. You can now reach this limit faster than before and advance to catastrophic coverage.
Please note that this 95% credit towards your TrOOP is only for brand-name drug purchases. For generic drug purchases while in the donut hole, you’ll still get the 75% discount, but only your out-of-pocket costs (25%) will count towards your TrOOP limit.
For example, in 2021, if you buy a brand-name drug for $100 during the donut hole phase, you’ll pay $25 and get $95 credit towards your TrOOP limit ($6,550). On the other hand, for a generic drug purchase of the same price, you’ll pay $25 and only the same would count toward meeting your TrOOP.
Is Medicare Part D Insurance the Best Option for Me?
While Part D is a great program, it is not always the cheapest way to purchase your prescription drugs. GoodRx, Blink Health, and other discount drug options may give you better prices than the Part D program. For instance, if you think you’ll not be able to exceed the $6,550 TrOOP (donut hole exit point) and advance to the cheap Catastrophic Coverage, you may save more money in the long run if you opt for GoodRx coupons and avoid the coverage gap altogether.
Choosing the Best Insurance Coverage
Choosing a perfect Medicare plan is a big decision, and the intricacies of this process can be confusing. At Insurance Connection USA, we make this process easy for you. We can help you through this process and provide you with unbiased recommendations from the top insurance companies we represent. Contact us today and enjoy a lifetime service for your Medicare insurance policy.