retirement

How the Medicare Part D Doughnut Hole Works

The gap in the middle of prescription-drug coverage that requires seniors to pay most of the cost of their drugs is shrinking.

How does the Medicare Part D doughnut hole work, and is it still shrinking in 2015? --H.M., Tampa

The so-called doughnut hole is the gap in the middle of Medicare Part D prescription-drug coverage that requires you to pay most of the cost of your drugs until you reach the catastrophic-coverage level.

For 2015, after you pay a $320 deductible, your Part D plan provides coverage until your drug expenses reach $2,960 (including both your share and the insurer’s share of the costs). Then you land in the doughnut hole and pay most of the cost of your prescriptions out of pocket—although you get a 50% discount on brand-name drugs from the drug company and your plan pays another 5%; you also get a 35% federal subsidy for generic drugs. When your out-of-pocket costs reach $4,700, your plan pays 95% of your covered drug costs.

Even though the pharmacy applies the discount in the doughnut hole automatically, both the 45% you pay and the 50% discount the drug company pays for brand-name drugs (but not the 5% paid by your plan) count toward your out-of-pocket costs. For generics, only the 65% you pay counts toward your out-of-pocket costs.

The gap will continue to shrink until 2020, when the discount for both brand-name and generic drugs rises to 75%.

Most Popular

The 11 Most Expensive Cities in the U.S.
real estate

The 11 Most Expensive Cities in the U.S.

From metro areas on both coasts to the middle of the Pacific Ocean, these are the priciest cities in the U.S. to call home.
August 9, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
You'll Save More on Green Home Improvements Under the Inflation Reduction Act
Tax Breaks

You'll Save More on Green Home Improvements Under the Inflation Reduction Act

Tax credits for energy-efficient home improvements will be extended and expanded by the Inflation Reduction Act.
August 12, 2022

Recommended

2 Risks People Face If They Retire in Tough Economic Times
retirement

2 Risks People Face If They Retire in Tough Economic Times

You’ve reached your retirement age, but our economy is on the rocks. What should you do?
August 13, 2022
Inflation Reduction Act Will Boost Obamacare Tax Credit
Tax Breaks

Inflation Reduction Act Will Boost Obamacare Tax Credit

Enhancements to the premium tax credit will be extended for three more years once the Inflation Reduction Act is signed into law.
August 12, 2022
‘I Can’t Retire – I Need Health Insurance’
health insurance

‘I Can’t Retire – I Need Health Insurance’

Health insurance is seen as a huge hurdle for early retirees, but the answer to finding affordable coverage could be simpler than you think.
August 7, 2022
What Hidden Obstacles May Snag Your Retirement? 5 Key Points to Consider
retirement

What Hidden Obstacles May Snag Your Retirement? 5 Key Points to Consider

To avoid getting hung up unexpectedly, plan for retirement using the “TRICK” method, which stands for taxes, risk tolerance, investment mix, costs and…
August 6, 2022