What’s the gap?
The gap, commonly known as “the donut hole,” occurs once you’ve filled $3,700 worth of prescriptions. That’s $3,700 retail, by the way, not what you or your insurance has paid for the medication.
Once you’re out of the gap (more on that in a moment) catastrophic coverage kicks in. At that point, you’ll pay $3.33 or 5% of the drug’s retail price — whichever one is higher.
How do you get out of the gap?
Well, according to Medicare you have to pay $4,950 out of pocket. Which has the dual benefit of scaring the crap out of anyone reading the rule and being incredibly inaccurate.
It’s incredibly unlikely that anyone in the donut hole is going to pay the full $4,950. I’m guessing few people even come close. That’s because of the way your “out of pocket” spending is calculated.
First of all, you’re going to pay only as much as your insurance pays for medications. That’s a substantially discounted amount: 40% for brand-name drugs’ retail cost, 51% for generics’.
Secondly, brand-name medication spending isn’t a 1:1 ratio for the spending limit. Instead, 95% of the retail cost is counted against the $4,950.
So if your brand-name medications add up to $1,000, you pay $400 but get credit for $950. This means that if you don’t have any generic medications, you’ll pay just $1,980 to get out of that $4,950 gap. #GovernmentMath
Unfortunately (and bafflingly), generic medications are credited at a 1:1 ratio. So if you have $1,000 of brand-name meds and $100 of generics, you’ll pay $451 and get credit for having spent $1001. #GovernmentLogic
So yes, if you take all generic medications, you’ll pay the full $4,950. But generic drugs users don’t need to freak out for two reasons.
- If all of your drugs are generic, it’s highly unlikely you’ll hit the gap. I spent nine years on Medicare and never once hit the donut hole — and there were a few years where I was taking five or even six medications a month.
- Even if you do end up in the gap, it’ll be so late in the year that you can’t possibly spend the full $4,950
Tim likes to breathe (and think)
In fact, the only reason Tim ended up here is that late last year he added two very pricey medications that don’t have generics.
While Dulera did significantly improve his breathing, it wasn’t quite doing enough. So his pulmonologist added in Spiriva ($374.35). Meanwhile his generic Adderall was making him grind his teeth, so his doctor switched him to Vyvanse ($275.42).
Those two medications made us hit the donut hole in October of last year. And it’s why he’s already gone through $3,700 worth of medication in the first three and a half months of the year.
How we’re coping
Second, I’ll be concentrating on getting rewards.
I can get 1% cash back through Dollar Dig. at Raise and Cardpool. There are two caveats here:
- Those sites may not have the best discounts.
- You only get cash back on the first $1,000 of purchases (and I’ve already shopped a fair amount at both).
But that’s okay because I can also shop Gift Card Granny’s preferred merchants for Granny rewards. Depending on how much I can use Cardpool/Raise, I should still end up with $5 to $10 worth of free GCs.
Finally, I’ll get rewards with our new credit card (which I’ll write about later). I want to go to Washington DC next year, which means we need to rack up points for more almost-free travel.
The donut hole may be a good thing
If you have a lot of expensive medications, this could actually save you money. That’s what it’s doing for us.
Tim’s copays are normally $291 a month, which sounds like a lot less — even in the long-run — than the $504 we’ll be shelling out for the next four months.
But it’s not.
Once catastrophic coverage kicks in, we’ll pay just under $66 a month. So even with the painful $504/month we’ll pay in the gap, we still come in at $3,294 for the year. Comparatively, $291 a month for 12 months is $3,892.
So this short-term pain actually saves us quite a bit of money.
And for those of you who itemize your taxes: Remember that your receipts will show what the pharmacy charges for the medication, not the price of the discounted GCs you used to pay.*
Have you had to deal with the donut hole (for yourself or a loved one)?
*A reader’s comment compels me to say: This is probably not in keeping with the tax code. And I certainly wouldn’t advocate breaking the law.** I’m simply pointing out that it’d be just about impossible to track specific discount gifts cards/store credit to specific medication purchases, and that the IRS only requires the receipts showing the prescriptions costs. (Or, say, a summary of your prescriptions for the year which shows no payment information whatsoever.) Do with this information what you will.
** Arguably, my statement actually is warning people to not take their receipt at face value, as it were.