What Is the Doughnut Hole Loophole in Health Care Insurance?


Quick Answer

The term "doughnut hole" refers to a temporary gap in coverage in most Medicare Part D prescription drug plans during which plan holders pay more for pharmaceuticals, reports Medicare. Coverage reaches the doughnut hole after a maximum amount in spending and continues until the plan holder reaches catastrophic coverage level.

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Full Answer

With most Medicare Part D plans, after the patient pays a $320 deductible, the doughnut hole is reached once the insurer and plan holder's combined expenses add up to $2,960 as of 2015, according to Kiplinger. The coverage gap continues until the plan holder's out-of-pocket expenses reach $4,700, when the insurer begins paying 95 percent of the cost of covered drugs. After reaching the doughnut hole coverage gap, the plan holder pays for 45 percent of the cost of brand-name prescription drugs, the insurer pays 5 percent, and the manufacturer gives a 50 percent discount, reports Medicare. In the doughnut hole, the plan holder pays 65 percent of the cost of generic drugs.

Costs that help bridge the doughnut hole coverage gap include all expenses the plan holder pays, including the deductible, copayments and coinsurance, and manufacturer discounts on brand-name drugs, states Medicare. Costs that do not count toward bridging the doughnut hole include payment for drugs not covered by the plan, the pharmacy dispensing fee and the Medicare Part D plan premium.

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