Saturday, February 7, 2015

'Donut Hole' Essentials For The Financial Advisor

The Medicare Part D donut hole can confound the best of us. Here's what financial advisors and their clients should know.
The so-called Medicare maze can be notoriously difficult to navigate for consumers, caregivers, and healthcare professionals. While Medicare provides an affordable way to cover doctors’ bills, hospitalizations, and prescription drugs, there’s a level of bureaucracy that confuses even financial advisors, CPAs and other savvy professionals. It’s worth investing the time, however, to ensure proper coverage and planning.
The Medicare Prescription Drug Plan coverage gap – known as the “donut hole” in industry jargon – is among the most confusing elements of the program. While the “donut hole” has been closing since the 2011 Affordable Care Act was passed, consumers are still responsible for paying a portion of their drug costs until reaching a point where the plan picks up the majority of the costs.
Gap in Coverage
The “donut hole” is the gap in Medicare Part D coverage that begins after you’ve paid the $320 deductible and your drug plan has spent a certain amount for covered drugs. In 2015, you’re in the coverage gap once you’ve spent $2,960 on covered drugs. After reaching the gap, you’re responsible for paying 45% of the costs for covered brand-name prescription and 65% of the price for generic drugs.
For example, suppose that Mr. Smith reaches the coverage gap in his Medicare drug plan and needs to fill a prescription for a covered brand-name drug. The drug’s cost is $60 with a $2 dispensing fee that gets added to the cost. Mr. Smith will pay 45% of the plan’s cost for the drug ($60 x 0.45 = $27), or $27, for the prescription. (For more, see: Getting Through the Medicare Part D Maze.)
Getting Out of the Gap
The “donut hole” gap in coverage ends when you’ve spent $4,700 in out-of-pocket expenses. At that point, Medicare’s “catastrophic coverage” kicks in and you’ll only be responsible for paying a small co-insurance amount or co-payment toward covered drugs for the rest of the year. Of course, the entire process repeats itself the following year when the out-of-pocket amount must be re-met.
Out-of-pocket expenses incurred during the “donut hole” gap in coverage differ depending on the type of prescriptions. For name-brand drugs, the amount that you pay plus the manufacturer discount payment can be counted as out-of-pocket spending. For generic drugs, you can only count the plan’s cost of the drug and the dispensing fee as out-of-pocket spending under the plan. (For more, see: Filling in The Medicare Gaps.)
Other Considerations
There are some other things, in addition to drug costs, that count towards out-of-pocket expenses. For instance, you may include yearly deductibles, co-insurance, and co-payments as out-of-pocket expenses. Items that aren’t included as out-of-pocket expenses include the drug plan premium, pharmacy dispensing fees, and what you pay for drugs that aren’t covered under Medicare Part D plans.
Usually, the “catastrophic coverage” kicks in automatically when the limits are met. If the discount doesn’t appear on your next “Explanation of Benefits” (EOB), you can file an appeal with Medicare with your prescription records and your plan’s contact information on hand to help. These appeals can be filed using resources on Medicare’s website or through a lawyer or other professional. (For more, see: Medigap vs. Medicare Advantage: Which is Better?)
Looking Ahead
The Affordable Care Act promises to phase out the “donut hole” by decreasing the beneficiary’s share of drug costs until it reaches 25% in 2020 for both brand-name and generic drugs. In general, Medicare enrollees can expect to pay 45% of brand-name drug costs through 2016 before larger discounts come into effect, while generic drug costs are more rapidly accelerated to 58% by 2016. has created a chart showing these dynamics through 2020.
Finally, when comparing Medicare plans, you can view out-of-pocket costs by month, based on a plan’s coverage, and which month a client is likely to fall in the “donut hole” in order to help better prepare. These details can be found on Medicare’s Plan Finder, but it’s important to keep “open enrollment” periods in mind when selecting plans since changes can only be made in certain months. (For related reading, see: Financial Advisors Need to Seek out This Group NOW.)

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