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What is a coverage gap?

Medicare drug plans may have a “coverage gap,” which is sometimes called the “donut hole.” A coverage gap means that after you and your plan have spent a certain amount of money for covered drugs (no more than $2,400), you have to pay out-of-pocket all costs for your drugs while you are in the “gap.” The most you have to pay out-of-pocket in the coverage gap is $3,051.25. This amount doesn’t include your plan’s monthly premium that you must continue to pay even while you are in the coverage gap. Once you’ve reached your plan’s out-of-pocket limit, you will have “catastrophic coverage.” This means that you only pay a coinsurance amount (like 5% of the drug cost) or a copayment (like $2.15 or $5.35 for each prescription) for the rest of the calendar year.

Note: If you get extra help paying your drug costs, you won’t have a coverage gap. However, you will probably have to pay a small copayment or coinsurance amount.

Chart of Coverage Gap
The example below shows calendar year costs for covered drugs in a plan that meets Medicare’s standards in 2007:
Mr. Jones joins the ABC Prescription Drug Plan. His coverage begins
on January 1, 2007. He pays the plan a monthly premium throughout
the year, even during his coverage gap. He doesn’t get “extra help.”
1. Yearly Deductible 2. Copayment/ Coinsurance

3. Coverage Gap
(“donut hole”)

4. Catastrophic Coverage
Mr. Jones pays the first $265 of
his drug costs.
Mr. Jones pays a copayment or
coinsurance amount, and his
plan pays its share for each drug until
his total drug costs (including
his deductible) reach $2,400.
Mr. Jones pays everything until he has
spent $3,850 out-of-pocket. (This includes his yearly deductible, coinsurance and copays, and
$3,051.25 while in the coverage gap. This does not include the drug plan’s premium.) Even though he is paying everything, he gets a discount because he belongs to a Medicare drug plan.
Once Mr. Jones has spent $3,850 out-of pocket for the year, his coverage gap ends. He only pays a small coinsurance (like 5%) or a small copayment (like
$2.15 or $5.35) for each prescription until the end of the year.

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