First off, I am no expert. It's really hard to find an expert who can simply explain part D coverage because it is so complex. I recently looked at Wikipedia and whomever wrote that description made some mistakes. The government's Center for Medicare Services even posted that it needs to be updated. That's a generous way of saying it is wrong. If you really want to understand the structure of the part D insurance it requires a lengthy history lesson of the machinations that the legislative body went through to arrive at providing prescription drug insurance coverage for seniors. The following link provides the history: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2690175/
The explanations provided by Medicare to the public are moment in time descriptions. They do not go back in history to explain terms like "coverage gap" nor the legislation arguments. Mostly, it is general and skips the reasons why the computation is so convoluted. Some terminology meaning also morphed as the program was legislatively changed. Then there is the dilemma rarely discussed, that prices for drugs can change as often as every two weeks in medicare.gov plan finder. I am guessing that happens as each insurance plan renegotiates prices with pharmaceutical companies as their contracts renew throughout the year. Nowhere in plan finder do they issue a warning that the prices are not guaranteed for a calendar year.
With that as a back drop, there are two publications that might help you, the first of which is much easier to read than the above link:
- This publication is from Medicare. It has some examples which are helpful. However, they do not truly explain the language that the geniuses decided to use to regarding the doughnut hole: https://www.medicare.gov/pubs/pdf/11493.pdf
- This publication is from Kaiser Foundation. They are NOT affiliated with Kaiser Health Insurance. They are a wonderful source of highly technical analysis of Medicare coverage. However, they are writing for the Medicare professional. The publication is difficult to read (at least for me) but worth a try: https://www.kff.org/medicare/fact-sheet/the-medicare-prescription-drug-benefit-fact-sheet/
Here's my crack at a simplistic part D description. First, there are, and will always be three phases to your part D insurance plan which are:
- initial coverage,
- "gap" coverage (albeit this name might change), and
- catastrophic coverage.
Again, THERE WILL ALWAYS BE THREE PHASES.
History helps you see why the second phase is currently called the coverage gap or doughnut hole.
In 2006, when part D insurance first became available, there was initial phase insurance but in the second phase, that is the doughnut hole, there was NO insurance assistance to a policy holder for prescription drug coverage until the policy holder's out of pocket drug cost exceeded $5000. Then insurance coverage would kick back in and provide catastrophic coverage. Ergo, the policy holder was responsible for 100% of the drug cost during the second phase or coverage gap.
In 2011, the ACA or Affordable Care Act or Obamacare legislation included gradually phasing in policy holder insurance coverage during the coverage gap such that, on average, in 2019, a policy holder might receive about the same insurance benefit as in the initial phase for brand name drugs. However, it would not have been politically expedient to change the name of the second phase until the ACA implementation is complete so it continues to be called the coverage gap.
Before 2011, part D insurers had almost no role in the second phase of coverage. The policy holder was paying 100%. The insurer was merely an administrator and jumped back in as insurer a little bit (at a 15% level) in the third phase.
Here's how it currently works.
The insurer is a major payer during initial phase of coverage (where the split between your copay and the insurance coverage is, "on average", 25% and 75% respectively for brand name drugs). In 2018, the initial phase lasts until the total cost of all your drugs (that is paid by both you the insurance company) equals $3750.
In the second phase (aka doughnut hole, aka coverage gap) your copay percentage increases and the insurance coverage drops. It pays about 15% which is the same percentage it has always paid in catastrophic coverage. However, the policy holder copay has been gradually declining since 2011. Reminder, before 2011 seniors paid 100% of the drug cost.
In 2018, in the coverage gap, you pay 35% and, as previously mentioned, your insurance pays 15% of the drug cost. Wait - that's only 50%! So who pays the other 50%? It's the pharmaceutical company who discounts the brand name drug 50%.
In 2019 the coverage gap copay percentage decline ends and the policy holder copay percentage will be 25% which is "on average" what it is in the first phase BUT the actual dollars you pay might be different. Hold on to that thought.
The third phase of coverage is the catastrophic coverage. You enter this phase when the sum of what you paid in the first two phases plus the drug company discounts in the second phase totals $5000.
In the catastrophic phase, the insurance company percentage is still 15%. However, the pharmaceutical company is no longer involved. Instead, the federal government becomes the major payer at 80% and your copay percentage drops to 5%. Actually, catastrophic level is the easiest level to understand and its structure has been the same since 2006.
The terminology of coverage gap and "doughnut hole closing" is, to put it bluntly, currently idiotic but politically expedient. What the creators were trying to describe by saying "the doughnut hole is closing" is that the "average" copay of 25% for a brand name drug will be the same in the initial coverage phase and in the second phase. Ergo, the average percentage of your copay in the initial coverage phase and in the "coverage gap" will be 25% and therefore the copay percentage in the first two phases will be equal in 2019 . That's what they mean. It's about PERCENTAGE, not absolute dollars. Clear as mud, right?
It turns out there is no "average 25%" copay for a brand name drug in the initial phase of part D plans. The insurance plans often put expensive brand name drugs in much higher tiers so your copay percentages can be significantly more than 25% . Insurers are allowed to define tier percentages and put brand name drugs in whatever tier they want. It is true that once you go to the second phase, your copay will be 25% but 25% of what number? Is it the same as the number in the initial phase? It depends on the price used in the second phase. Therefore, the actual dollar amount copay of a drug can be different in the second phase. It will depend on the price the pharmaceutical company uses to discount the drug which might be more or less than the price in the initial phase and/or you might have been paying more or less than 25% of the drug cost in the initial phase.
I will not try to explain more. I just wanted to help you understand the structure of the part D plan and try to get away the the idiotic terminology that surrounds it. I urge you to read the publications and also try to get your part D insurance to explain your costs (good luck with that).
I also urge you to keep badgering your elected officials to both simplify part D and to protect Medicare. Medicare has been a political football since its inception in 1965. In addition to legislative actions, there are many subtle HHS non-legislative actions being taken to cause Medicare to be substantially more expensive for seniors, by doing such things as increasing part B premiums and part A deductibles and co-pays. Over the last 10 years those costs have increased by about 40%. That, in turn, increases the premiums of Medicare Supplements (medigaps) and Medicare Advantage premiums or reduces MA plan in-network options. There is also conservative pressure to privatize Medicare by pushing seniors to Medicare Advantage plans which are managed care plans that limit access to a wide network of health professionals.
