Calculate Your Way Through the Donut Hole

Count Your Dollars and Cents

Part D Donut Hole
You do not need a science degree to calculate your way through the donut hole. Todor/Tsvetkov Vetta/Getty Images

The concept of the donut hole is confusing enough without bringing math into the equation. Understanding how much you will pay for your prescription drugs, however, can help you to pick a Part D plan that will save you money and, better yet, may even help you avoid the donut hole altogether.

Understanding Part D Costs

For 2016, these are the costs you need to know about.

  • Annual deductible: The maximum deductible you can be charged by a Part D plan in 2016 is $360. Depending on the specific plan you choose, your deductible could be lower or even zero.
  • Initial coverage limit: $3,310 is the amount you and your Part D plan will spend before the donut hole kicks in. This includes your deductible, your copayments/coinsurance for each medication you take and how much your plan pays towards each of these medications. It does not include your monthly premium, the cost of medications your plan does not cover or the cost of medications purchased outside of the United States.
  • Amount you need to pay before you get out of the donut hole: After spending your initial coverage limit for the year, your Part D coverage will decrease considerably. This is the coverage gap period known as the donut hole. You will pay $1,540 in out of pocket expenses before you get out of the donut hole.

Look to the Past

The first thing you need to do is take a look at how much you spent on your prescription drugs the previous year. Looking at how much you pay every month will not be as helpful when it comes to picking a Part D plan.

This is because monthly numbers do not take into account deductibles or how much more you may have paid or will pay if you got caught in the donut hole. The annual number gives you a bird's eye view of all your medication expenses and makes it easier to compare the true cost between Part D plans.

Calculate Your Expected Drug Costs

Fill in the following table:

Your Part D Expenses
 Cost x 1 monthCost x 12 months
Annual deductible  
Monthly premium  
Medication #1  
Medication #2  
Medication #3  
Medication #4  
Medication #5  
Column Total  

This shows how much you will pay out of pocket for drug expenses for the year, if the donut hole did not come into play. This can be helpful to give you a sense if one plan will save you money over another.

Calculate How Much Your Part D Plan Pays for Your Medications

To know whether or not you would actually fall into the donut hole, you need more information. You need to know how much your Part D plan pays for each drug each month. This information will be provided to you on statements from the insurance company

Your Plan's Part D Expenses
 Cost x 1 monthCost x 12 months
Medication #1  
Medication #2  
Medication #3  
Medication #4  
Medication #5  
Column Total  

Add up the annual costs from each of these tables. If the total does not exceed $3,310, there is no need to worry. You will not enter the donut hole if you continue on your current medications.

If the total exceeds $3,310, you will need to plan for the donut hole in the coming year.

Calculate Brand Name Drug Costs in the Donut Hole

Your prescription drug costs increase when you enter the donut hole. You will pay 45 percent out of pocket for brand name drugs.

Your Brand-Name Donut Hole Costs
 Retail Monthly Drug CostCost x 0.45 (45 Percent)
Medication #1  
Medication #2  
Medication #3  
Medication #4  
Medication #5  
Column Total  

Pharmaceutical companies will give you a 50 percent discount on your brand-name medications. This 50 percent subsidy counts towards your donut hole threshold. Any money paid for your medications by your Part D plan, the remaining 5 percent, however, does not. For this reason, 95 percent of the retail costs of your medications will count towards your donut hole.

Brand Name Costs Counting Towards the Donut Hole
 Retail Monthly Drug CostCost x 0.95 (95 Percent)
Medication #1  
Medication #2  
Medication #3  
Medication #4  
Medication #5  
Column Total  

Calculate Generic Drug Costs in the Donut Hole

Discounts for generic drugs and what your Part D plan pays for these medications will not help you pay down the donut hole. You are responsible for paying for 58 percent of the cost of all generic medications.

Your Generic Donut Hole Costs
 Monthly Drug CostCost x 0.58 (58 Percent)
Medication #1  
Medication #2  
Medication #3  
Medication #4  
Medication #5  
Column Total  

These tables give you an estimate for how much you will pay each month for medications when you are in the donut hole. You get out of the donut hole once you have spent $1,540 for your medications, whether they are brand-name or generic.

The Big Picture

There is a lot of math to consider when it comes to the donut hole. First, you have to know if you are at risk for the donut hole in the first place. Next, you need to talk to your doctor to see if you are on the best medications to keep costs downs, i.e. generics over brand-name drugs when possible. Some Part D plans even offer higher premiums to help pay down your donut hole sooner. The upfront cost may save you money in the long run. Do your research and grab a calculator. It may help to save you on your prescription drug coverage.

Continue Reading