Medicare Part D

Topics covered:

What is the Medicare "Doughnut Hole"?

The Medicare Doughnut Hole is the gap in the 2008 Medicare Plan D coverage between $2510 and $5726.25 in prescription drug spending. (Please see below for an important note on how your prescription drug spending costs are calculated.)

During this gap in coverage, enrollees in Medicare prescription drug benefit will not receive any help for their Medicare plan in paying for their prescriptions. Medicare Part D beneficiaries are 100% responsible for paying for their prescription drug costs while in the doughnut hole. In 2008, this is a gap in coverage of $3,216.25 that you must pay the full amount of in order to make it through the doughnut hole. However, there are very helpful alternatives that we will show you later on in this document.

The exact dollar amounts to enter and exit the doughnut hole change every year with the coverage gap growing larger every year.

In 2006, the doughnut hole spanned from $2,250 to $5,100 (a $2,850 gap in coverage)
In 2007, the doughnut hole spanned from $2,400 to $5,451.25 (a $3,051.25 gap in coverage)
In 2008, the doughnut hole spans from $2,510 to $5,726.25 (a $3,216.25 gap in coverage)
It has been predicted that by 2013 the doughnut hole will span from $4,000 to $9,068 (a $5,068 gap in coverage).

Important note: It is fairly critical that you understand how your prescription drug expenditures are is calculated with Plan D. Not only is the amount that YOU pay for your medication counted towards your prescription drug spending, but the amount that your MEDICARE PRESCRIPTION DRUG PLAN pays on your behalf is also counted towards your expenditures. Many people are being surprised by the fact that they hit the Doughnut Hole so early. They are surprised because they believed that only the amount that they spent personally was counted towards the $2510 required to reach the Doughnut Hole.

Your drug expenditures do not include your monthly premiums.

How is the Medicare Part D Doughnut Hole broken down in terms of dollars and cents?

In 2008, the Doughnut Hole begins at $2510 in prescription drug expenditures. (Remember your drug expenditures are the combined total of what you spend and what your Medicare Drug Plan spends on your behalf.)

During the first $2510 of spending for the year, before you reach the Doughnut Hole, there is $833.75 in OOP expenditures.

Here is how the OOP expenses breaks down in the first $2510 of spending on Medicare Plan D:

$275 in OOP expenses from the 2008 Medicare Part D deductible + $558.75 in OOP expenses for the 25% co-pay on the other $2235 ($2510 doughnut hole threshold - $275 annual deductible = $2235). Therefore, $275 annual deductible + $558.75 in co-payments = $833.75 in out-of-pocket expenses during the first $2510 of spending.

Once you’ve reached the doughnut hole, the gap in coverage continues until your out-of-pocket (OOP) expenses have reached $4050 for the year.

Where did this $4050 figure come from? Well, $4050 is simply the required amount of out-of-pocket spending that Medicare accountants determined as your spending requirement for 2008. Now, if you spend this amount, you will have reached the catastrophic coverage point in which Medicare now pays 95% of your drug costs.

So $4050 minus the $833.75 you spent out-of-pocket during the first $2510 of drug costs leaves you with $3216.25 remaining for you to spend in order to get past the Doughnut Hole.

$2510 that you and your Medicare plan spent to reach the Doughnut Hole starting point + $3216.25 you must spend to get through the Doughnut Hole = $5726.25.

Therefore, you must have drug expenditures of $5726.25 or more in 2008 in order to reach the catastrophic coverage point and make it through the Doughnut Hole.

To summarize, the Doughnut Hole is a gap in coverage in the Medicare Part D program between the drug expenditure amounts of $2510 and $5726.25. While in this coverage gap Medicare Prescription Drug Plan enrollees’ are responsible for paying 100% of their drug expenses.

Here is a chart that may help to make these calculations a little more clear:

How will the Medicare Part D Doughnut Hole effect me?

How the Doughnut Hole affects you personally depends on how much you spend on prescription medications in 2008.

If you spend less than $2510 on medications in 2008 you will not be affected at all by the Medicare Doughnut Hole. A basic rule to remember is that if you spend $210 or less per month in 2008 you will not reach the Doughnut Hole.

If you spend more than $2510 but less than $5726.25 (between $210 and $477 monthly) on medications in 2008 you will hit the Doughnut Hole but you will not make it through to the other side to hit the catastrophic coverage point. At the catastrophic coverage point Medicare starts paying 95% of your drug expenditures. You will pay 100% of the cost of your drugs while in the Doughnut Hole.

If you spend more than $5726.25 (over $477 monthly) on medications in 2008 you will go through the Doughnut Hole and reach the catastrophic coverage point. This will mean that you personally spent $3216.25 while in the Doughnut Hole and that Medicare plan will start paying 95% of your prescription expenses on any amount beyond the $5726.25 expenditure point. Please note this 95% coverage is only on expenditures beyond the $5726.25 point it does not apply to any previous expenditures under the $5726.25 mark.

Interesting fact: Exactly how much do you spend in 2008 to get through the Doughnut Hole? And how much do you really save?

Annual Estimated premium in 2008 = $300 (12 x $25 average monthly premium)
+ Annual Deductible = $275
+ Cost you pay from $275 to $2510 (25% of $2235) = $558.75
+ Cost you pay from $2510 to $5726.25 (100%) = $3216.25
Total = $4350

Therefore, to calculate your savings we need to take $5726.25 (Your cost + your Medicare plan’s cost paid through the doughnut hole) - $4350 (your total costs) = $1376.25 (or 24% of $5726.25 is what your Medicare plan actually pays). Did you know that with Universal Drugstore you can save an average of 45% off? This means you could save an additional 21% off what you save with Medicare. That would mean approximately another $1202.51 that would stay in your pocket if you used Universal Drugstore for all your medication purchases through out the year. However, rather than using Universal Drugstore for all your purchases there is an even better way that will save you even more money. This “better way” is revealed later in this document.

If I receive a Low Income Subsidy from Medicare (i.e. full extra help or partial extra help),How will the Doughnut Hole affect me?

Fortunately, if you receive the Medicare benefit called full extra help supplement, you will receive continuous coverage throughout the Doughnut Hole. You will not have to pay for your medications between the $2510 and $5726.25 Doughnut Hole range.

If you receive the Medicare benefit called partial extra help supplement, you will hit the Doughnut Hole but your will receive a 15% co-insurance up to the $4050 out-of-pocket limit. This means that you will pay 85% of your drug costs rather than 100%. So rather than paying the full $3216.25 to get through the Doughnut Hole you would pay $3216.25 x 0.85 = $2733.81. However, with Universal Drugstore, on average, you would only pay $1769. This is a savings of $965 over your Medicare drug plan.

Will I hit the Doughnut Hole?

You will hit the gap in coverage in the Medicare Drug Plan, called the Doughnut Hole, only if you spend more than $2510 on your medications in 2008 (i.e. you are spending more that $210 a month). If you spend less than $2510 there will be no gap in coverage for you. Also if you receive Full Extra Help from Social Security you will not hit the Medicare Doughnut Hole.

When will I hit the Doughnut Hole?

Tip: Watch your monthly Medicare drug plan statements to see how close you are to hitting the gap ($2510).

Exactly WHEN you hit the Doughnut Hole during the year depends on how quickly you spend enough to reach the $2510 Medicare Doughnut Hole starting point. If you spend $627.50 a month it will take you 4 months (May 1st) to reach the Doughnut Hole. If you spend $250 a month it will take you 10 months (November 1st) to reach the Doughnut Hole. If you spend $210 a month it will take 12 months to reach the Doughnut Hole (i.e. you would not reach the Doughnut Hole in 2008).

In order to figure out when you will hit the Medicare Doughnut Hole simply take the dollar amount $2510 and divide it by your monthly medication costs. This will give you the number of months that it will take for you to reach the Doughnut Hole.

Example: $2510 ÷ $314/month = 8 months

January 1 + 8 months = On September 1st you will hit the doughnut hole if you spend $314/month.

Note: You should receive regular monthly statements from your Medicare card provider. These statements should also help you to estimate when you will hit the Medicare Doughnut Hole.

Here is a chart that will help determine when you will hit the doughnut based on your monthly spending:

You can also visit www.MedicareDoughnutHole.com and use our Doughnut Hole predictor tool.

When will the average Medicare enrollee hit the coverage gap called the Doughnut Hole?

The Center for Medicare and Medicaid Services estimated that in 2006 the average Medicare Part D beneficiary spent $3080 a year on medications. A March 5, 2008 an AARP Report called Rx Watchdog Report: Trends in Manufacturer Prices of Brand Name Prescription Drugs Used by Medicare Beneficiaries—2002-2007, found that the drug companies raised the prices of drugs most commonly used by Medicare beneficiaries by 7.4% from 2006 to 2007.

So, if we take the $3080 spending estimate for 2006, we can assume that in 2007 the average Medicare beneficiary spent 7.4% more or $3308 in 2007. So, what will the average Medicare beneficiary spend in 2008 then? Well, we will need to make some assumptions. Taking data from the AARP report we found that the average annual drug price increase between 2002 and 2007 was 6.5%. Therefore, if we add the average 6.5% annual price increase to the 2007 total of $3308 we can assume that the average Medicare Part D beneficiary will spend $3523 on medications in 2008.

This means that the average Medicare Part D beneficiary will spend $293.60 per month or $9.65 per day on medications in 2008. If we take $3523 and divide it by $9.65 this tells us that it will take 260 days for the average Medicare beneficiary to reach the Doughnut Hole in 2008. This will be September 16th. However, a report by The Institute for America’s future estimated the Doughnut Hole day to be September 10th in 2008. Either way, we can safely assume that the average Medicare beneficiary will reach the doughnut hole between September 10th and September 16th in 2008.

Do I still have to pay my monthly Medicare Part D premiums while I am in the Doughnut Hole?

Unfortunately, there is no “Doughnut Hole” when it comes to your monthly premiums. You still pay your full monthly premiums even while you are in the Doughnut Hole. During this time you are basically receiving zero benefit from the Medicare Plan D program but you are still required to pay your premiums.

What expenditures count towards the $2250 level that puts me into the Doughnut Hole?

The portions of your prescription spending that count towards the $2510 are:

Your annual deductible ($275 in 2008), your co-payment amounts (25% of drug cost before you reach the Doughnut Hole) and the amount your Medicare drug plan pays for your drugs. Your monthly premiums are not counted towards this total or towards your out-of-pocket expense total.

What is the reason that the government created a Doughnut Hole in the Medicare Prescription Plan?

The main reason touted by government officials for Congress creating a Doughnut Hole in the Medicare Part D plan was to control costs and to lower the potential burden of the Medicare prescription drug plan on taxpayers.

Another speculated reason is that Congress (due to lobbying pressures of pharmaceutical and insurance companies) wanted the program to look very enticing by being able to offer a benefit that, on the surface, looked like it was providing seniors with 75% off their drug expenditures. Congress simply could have created a plan that provided a benefit of 25 or 30% off for the entire year but that doesn’t sound nearly as exciting as 75% off. It’s much easier for them to market a program that sounds incredible…i.e. “Wow, you only pay 25% of the cost of your medications”. The part they conveniently forget to promote is that the savings are only there until you hit the Doughnut Hole then you are on your own.

If you are one of the unfortunate people who hit the Doughnut Hole you soon realize that the Medicare drug plan is not as great as it was first proclaimed to be.

When you factor in the annual deductible, average monthly premiums and co-payments, individuals that spend exactly $2510 (the starting point of the Doughnut Hole) in 2008 will save 54.8% on their medications for the year. However, individuals who spend exactly $5726.25 (the end of the Doughnut Hole) will save 24.0%. That means that since there is a Doughnut Hole in the Medicare Part D plan, an individual who spends up to the Doughnut Hole starting point will save 30.8% more on their medications for the year than an individual who spends up to the end of the Doughnut Hole but does not reach the catastrophic coverage point. Does that seem fair? Why not simply average out the savings for everyone.

Will the Doughnut Hole be the same in 2009?

No. The Doughnut hole will be even bigger in 2009. In 2008 you must spend $4050 out of pocket before you make it through the Doughnut Hole. In 2009, the gap is estimated to go from $2920 to $6596. In 2009, you will need to spend $4649.75 in order to make it through the Doughnut Hole. These estimate numbers come from the Congressional Budget Office.

It is important to note that your monthly premiums will also likely be higher in 2009.

Please remember that these are only estimates of what the doughnut hole numbers will be next year.

How big will the Doughnut Hole get in the future?

The Doughnut Hole is only going to continue to grow. It’s estimated by the Congressional Budget Office that the Medicare Prescription Plan Doughnut Hole will start at $4000 and end at $9068 in 2013. This means you will have to spend $6511 out-of-pocket to make it through the Doughnut Hole to the catastrophic coverage point.

Right now, $6511 may sound like an amount that you would never spend in an entire year on medications, never mind spending that amount just to get through the Doughnut Hole. However, with U.S. drug prices going up and average of 6.5% a year, between 2002 and 2007, it is impossible to say just how high drug prices in the U.S. will be in 2013.

Another report by the Committee on Ways and Means estimates that in 2016 the doughnut hole will start at $5370 and end at $12,100. That is a gap of $6730. This would mean out-of-pocket spending of approximately $8450 in 2016. That is only 8 years away.

How many people will hit the Doughnut Hole in 2008?

Estimates of how many people will hit the doughnut hole in 2008 range from 3 million to 7 million Medicare Part D beneficiaries.

What are my options once I hit the Doughnut Hole?

You have three basic options once you hit the doughnut hole:

Option 1) Start paying 100% of the full medication price established by your Medicare plan once you hit the coverage gap (often times the Medicare drug plan prices are even higher than the price you would pay for your medications outside your Medicare plan).

Option 2) Utilize the pharmacy services of www.UniversalDrugstore.com, a licensed Canadian pharmacy, and save an average of 45% off the U.S. retail price of your medications. These savings can be increased greatly using many of the new generic medications available. Call us today at 1-866-456-2456 to find out the prices of your medications and to see if a generic version of your medication is available.

During the Doughnut Hole you may spend up to $3216.25 before you hit the catastrophic coverage point. With an average savings of 45% you will save approximately $1447 off that $3216.25 simply by utilizing the services of Universal Drugstore. If you only spend $500 in the Doughnut Hole you would still save $210. That is a significant amount of money. Why would you pay full retail price through your Medicare card? See the end of this document for coupons to help you save even more on your first order.

Option 3) If you are going to spend enough money (more than $5726.25) in 2008 it may make more sense for you to continue paying the full retail price through your Medicare card. The reason being is that by staying with your Medicare card you will eventually reach the catastrophic coverage point, at which time Medicare starts paying 95% of your drug costs. This only applies to you if you are going to spend more than $5726.25 for the year. If you are not going to spend more than $5726.25 in 2008 then you are much better off using the licensed pharmacy services of Universal Drugstore once you hit the coverage gap. In fact, with the possible $1447 worth of savings during the doughnut hole that Universal Drugstore can provide you would need to spend approx. $7266 dollars in 2008 (about $600 a month) to get more benefit out of Medicare than by using Universal Drugstore once you reach the doughnut hole.

Can I avoid the Doughnut Hole?

You most definitely can avoid paying full U.S. retail price once you have reached the $2510 Doughnut Hole starting point.

Unfortunately, you can not avoid the Doughnut Hole completely. You can not continue to receive your medications for the 25% co-payment you were entitled to before you hit the doughnut hole. However, you can pay significantly less than the ever-increasing Medicare plan drug prices.

(According to a report by Families USA, Medicare Part D prices of the top 15 drugs prescribed to Seniors rose by 9.2% from April 2006 to April 2007. That is almost 4 times the rate of inflation at that time of 2.4%, and almost 3 times the increase in that year’s cost-of-living adjustment in Social Security. More recently, a March 5, 2008 report by AARP found that, in 2007, the prices of the most common medications used by Medicare Part D beneficiaries rose 7.4%)

So exactly how do you pay significantly less than Medicare Plan drug prices?

Simply by utilizing the licensed pharmacy services of Universal Drugstore. Universal Drugstore is a licensed Canadian pharmacy provider. Universal Drugstore saves its 100,000 plus customers an average of 45% off the U.S. retail price. These savings are available to everyone.

How much will the average Medicare enrollee save by utilizing the pharmacy services of Universal Drugstore once they hit the Doughnut Hole?

Based on The Institute for America’s Future estimated date of September 10th for the Doughnut Hole day in 2008 we can extrapolate that the average Medicare enrollee would spend $9.88 a day or $3606.89 for the year. Also if you look back at question number 7 you can see that we calculated an estimated amount that the average Medicare enrollee will spend. Our calculated estimate found that the average Medicare beneficiary will spend $3523 on medications in 2008.

So if we take the average of those two numbers we get the number $3565 (= $297/month). Let’s therefore assume $3565 as the amount of money that the average Medicare enrollee will spend in 2008.

Using this number we calculate: $3565 - $2510 (doughnut hole starting point) = $1055. $1055 is the amount that the average Medicare beneficiary will spend once they have reached the Doughnut Hole.

If we calculate the prescription drug savings using the Universal Drugstore average savings of 45%, the average Medicare enrollee would save $475 off of this $1055 simply by using the licensed pharmacy services of Universal Drugstore while in the Doughnut hole. Therefore, instead of spending $1055 with their Medicare card the average Medicare enrollee would pay only $580 with Universal Drugstore. If you spend more than the average enrollee (i.e. more than $297 per month) and hit the Doughnut Hole earlier in the year you will save even more than $475 with Universal Drugstore.

By utilizing Universal Drugstore’s services while in the Doughnut Hole, the savings for some individuals can be as high as $1447 in 2008. Add this to the $1,676.25 in savings provided by Medicare before you reach the doughnut hole and you have $3123.25 in savings for the year.

Who can save the most during the Doughnut Hole?

If you spend approximately $477 a month ($5726.25 for the year) on medications you are in the best position to save with Universal Drugstore during the Doughnut Hole. Spending $477 a month will mean that in 2008 you will hit the Doughnut Hole in early June (on June 8th to be exact) and you will make it to the end of the Doughnut Hole but not out. You will spend $3216.25 in the Doughnut Hole. If you spend approximately $477 a month on medications in 2008, Universal Drugstore can save you almost $1500 this year (based on average savings) over and above your Medicare savings. Call us today at 1-866-456-2456 to find out how much you can save.

In fact, if you spend $477 a month on your medications in 2008, by using Universal Drugstore once you hit the doughnut hole you will save $1447 ($3216.25 x average savings of 45% = $1447). Now, if you add those savings of $1447 to the $1676.25 worth of savings you received from your Medicare plan before you hit the doughnut hole, you will save a total of $3123.35 for the year. That is the optimal way to create savings with the Medicare drug plan. Use your Medicare plan until you reach the doughnut hole, then use the licensed Canadian pharmacy services of Universal Drugstore in the doughnut hole. Anyone spending between $2510 and $7266 in 2008 will save money with Universal Drugstore.

What are out-of-pocket (OOP) expenditures?

Out-of-pocket expenses are any expenses for your drugs that you personally pay. These expenses include the $275 dollar annual deductible and any co-payments you pay.

What expenditures do not count towards my out-of-pocket expenditures?

Your monthly Medicare plan premium does not count towards your out-of-pocket expenses.

Also any drugs that you pay for personally because they are not covered by your plan are not considered an out-of-pocket expense. Only drugs that are on your Medicare plan’s formulary and that you pay for personally are counted towards your out-of-pocket expenses.

If you use another insurance plan to pay for your medication those expenses are not counted towards your out-of-pocket expenses.

Any medications that you purchase from a pharmacy that is not included in your plan’s network of pharmacies will not be included towards your out-of-pocket expenses.

What is the Medicare catastrophic coverage point?

The catastrophic coverage point is the point at which your Medicare card begins paying 95% of your medication expenses. In 2008, this point begins at $5726.25 worth of drug expenditure for the year. This point is set higher in 2009. In 2009, the catastrophic coverage point is estimated to begin at $6596 in expenditures.

What other issues are there with the Medicare Part D program that may affect me?

A fairly major issue, which the impact of is being felt already, is the fact that Medicare is not allowed to negotiate prices with the big drug companies. The law stating that Medicare can not negotiate better prices on your behalf is affecting you right now. Prices have risen dramatically since the start of the program in 2006.

From April 2006 to April 2007, Medicare plan drug prices on the top 15 drugs rose 9.2% according to a Families USA study.

From the Families USA report: “Drug prices matter to Part D beneficiaries because they determine when beneficiaries meet their deductible and initial coverage limit. Moreover, when beneficiaries are in the coverage gap or “Doughnut Hole,” they must pay the full price charged by their plan. As drug prices increase, beneficiaries will reach the Doughnut Hole faster. In addition, drug prices are a major contributor to the cost of a drug plan’s premiums. As drug prices increase, so will beneficiaries’ premiums.”

A more recent report by AARP released on March 5, 2008 found that the prices of medications most commonly used by Medicare beneficiaries increased by 7.4% in 2007. We have yet to see what the rate of increase on drug prices in going to be in 2008.

What is the best option for me?

What the best option is for you, depends on your spending for the year. . .

You must first determine how much you are going to spend on medications in 2008 with your Medicare plan.

If you are going to spend between $2510 and $5726.25 your best option will be to use the services of Universal Drugstore once you hit the Doughnut Hole.

If you are going to spend significantly more than $5726.25 (actually you need to spend more than $7266 to save more) you are probably better off staying with your Medicare plan. If you are going to spend only a small amount over $5726.25 you may be better off using the services of Universal Drugstore. This is because you can save $1447 (based on average savings of 45%) with Universal Drugstore during the Doughnut Hole which may outweigh any savings you will get once you reach the catastrophic coverage point.

If you are not sure call us to discuss your options or visit www.MedicareDoughnutHole.com and use our Doughnut Hole predictor tool. It not only calculates when you will hit the doughnut hole but also shows you your potential savings and your best option.

What is the best option for me?

What the best option is for you, depends on your spending for the year. . .

You must first determine how much you are going to spend on medications in 2008 with your Medicare plan.

If you are going to spend between $2510 and $5726.25 your best option will be to use the services of Universal Drugstore once you hit the Doughnut Hole.

If you are going to spend significantly more than $5726.25 (actually you need to spend more than $7266 to save more) you are probably better off staying with your Medicare plan. If you are going to spend only a small amount over $5726.25 you may be better off using the services of Universal Drugstore. This is because you can save $1447 (based on average savings of 45%) with Universal Drugstore during the Doughnut Hole which may outweigh any savings you will get once you reach the catastrophic coverage point.

If you are not sure call us to discuss your options or visit www.MedicareDoughnutHole.com and use our Doughnut Hole predictor tool. It not only calculates when you will hit the doughnut hole but also shows you your potential savings and your best option.

What is the optimal way to create the absolute best savings with the Medicare Prescription Drug plan?

If you are going to spend more than $2510 but less than $7266 on medications in 2008 then the optimal way to create savings with your Medicare drug plan is to use your Medicare plan until you reach the doughnut hole, then when you have to pay full price in the doughnut hole, use the licensed Canadian pharmacy services of Universal Drugstore.

Individuals spending approximately $477 a month or $5726.25 for the year, can save as much as $3123.35 by using this combination of their Medicare Plan plus Universal Drugstore. Without using the services of Universal Drugstore while in the doughnut hole these people would save only $1676.25 for the year. That’s a big difference from $3123.35 worth of savings. See question 17 for a more complete explanation of how these savings are calculated.

MedicareDoughnutHole.com is continually being updated with innovative and advanced tools to help you understand and analyze your Medicare options. Be sure to return regularly to maximize your Doughnut Hole knowledge and to utilize these tools which will be available to you very soon.