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What is a Coverage Gap?
Medicare drug plans may have a "coverage gap," which is sometimes called the "donut hole." A coverage gap means that after you and your plan have spent a certain amount of money for covered drugs (no more than $2,400), you have to pay out-of-pocket all costs for your drugs while you are in the "gap." The most you have to pay out-of-pocket in the coverage gap is $3,051.25. This amount doesn't include your plan's monthly Premium that you must continue to pay even while you are in the coverage gap. Once you've reached your plan's out-of-pocket limit, you will have "catastrophic coverage." This means that you only pay a Coinsurance amount (like 5% of the drug cost) or a Copayment (like $2.15 or $5.35 for each prescription) for the rest of the calendar year.
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Note: If you get extra help paying your drug costs, you won't have a coverage gap. However, you will probably have to pay a small copayment or coinsurance amount.
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The example below shows calendar year costs for covered drugs in a plan that meets Medicare's standards in 2007:
Mr. Jones joins the ABC Prescription Drug Plan. His coverage begins on January 1, 2007. He pays the plan a monthly premium throughout the year, even during his coverage gap. He doesn't get "extra help." |
1. Yearly
Deductible |
2. Copayment/
Coinsurance |
3. Coverage Gap
("donut hole") |
4. Catastrophic
Coverage |
| Mr. Jones pays the first $265 of his drug costs. |
Mr. Jones pays a copayment or coinsurance amount, and his plan pays its share for each drug until his total drug costs (including his deductible) reach $2,400. |
Mr. Jones pays everything until he has spent $3,850 out-of-pocket. (This includes his yearly deductible, coinsurance and copays, and $3,051.25 while in the coverage gap. This does not include the drug plan's premium.) Even though he is paying everything, he gets a discount because he belongs to a Medicare drug plan. |
Once Mr. Jones has spent $3,850 out-of-pocket for the year, his coverage gap ends. He only pays a small coinsurance (like 5%) or a small copayment (like $2.15 or $5.35) for each prescription until the end of the year. |
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(Primary Source: Centers for Medicare and Medicaid Services - Medicare and You Handbook 2007. This content may have been added upon by Q1Group LLC to include further examples, explanations, and links.)
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Last updated on: 07/18/2008
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