Why is there a doughnut hole in Medicare’s drug coverage?
The doughnut hole design allows the program to manage its outlay for high-cost/ high-need members. After the member has reached the doughnut hole, he or she is “back on the hook” for some of the drug costs. Thus, the member has a motivation to keep close track of the costs and not over-use. Otherwise, high utilizers would have no reason to conserve their use.
The doughnut hole is gradually disappearing, as part of the Affordable Care Act. By 2020, the coverage gap (aka “donut hole”) will be 25% rather than 100%. Brand-name drug makers will give a 50% discount on donut hole prescriptions and federal subsidies will cover 25%. Generic drugs will have a 75% discount.
Here are the figures for 2014, from Medicare.gov’s website
In 2014, once you and your plan have spent $2,850 on covered drugs (the combined amount plus your deductible), you’re in the coverage gap. Once you reach the coverage gap in 2014, you’ll pay 47.5% of the plan’s cost for covered brand-name prescription drugs (you’ll pay 45% in 2015). Although you’ll only pay 47.5% of the price for the brand-name drug in 2014, 97.5% of the price—what you pay plus the 50% manufacturer discount payment—will count as out-of-pocket costs which will help you get out of the coverage gap.