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Demystifying Medicare's "Donut Hole" and Dual Eligibility

In last week's blog, we talked about Medicare Advantage plans and the importance of educating yourself when making a choice among those who provide these policies. In this week's blog, we are going to discuss the "Donut Hole" for Medicare Part D or prescription coverage and those individuals who may be eligible for blended coverage of Medicare and Medicaid. We are also going to look at some specialized coverage plans as well. So let's get started.


I. Understanding the Donut Hole

What is it?

"The most misunderstood and often confusing portion of prescription drug coverage for many of our clients is what we refer to as the donut hole," said certified elder law attorney (CELA) RJ Connelly III. "It is confusing because it involves numbers, circumstances, and phrases that can make us pull out our hair, or what is left of it. The Donut Hole is where there is a gap in coverage but contrary to popular belief, those on Medicare do not pay 100% of the costs of their medications while in the Donut Hole."

"The Donut Hole is where there is a gap in coverage but contrary to popular belief, those on Medicare do not pay 100% of the costs of their medications." ---Attorney RJ Connelly III

Let's talk numbers. The Donut Hole begins once you reach your Medicare Part D plan’s initial coverage limit of $4,480 in 2022 and ends when you spend a total of $7,050 out-of-pocket in 2022. However, there are discounts on brand names and generic drugs in the "donut hole".


Brand Name Discounts

Part D enrollees receive a 75% Donut Hole discount on the total cost of their brand-name drugs purchased while in the Donut Hole. This includes a 70% discount paid by the brand-name drug manufacturer and a 5% discount paid by your Medicare Part D plan. The 70% paid by the drug manufacturer combined with the 25% you pay, count toward your Donut Hole exit point.

Don't be intimidated by the "Donut Hole"

For example: If you reach the Donut Hole and purchase a brand-name medication with a retail cost of $200, you will pay $50 for the medication, and receive $150 credit toward meeting your 2021 total out-of-pocket spending limit.


Generic Drug Discounts

Medicare Part D beneficiaries who reach the Donut Hole will also pay a maximum of 25% co-pay on generic drugs purchased while in the Coverage Gap (receiving a 75% discount).


For example: If you reach the 2021 Donut Hole, and your generic medication has a retail cost of $200, you will pay $50. The $50 that you spend will count toward your Donut Hole exit point.


"TrOOP"- What's This?

"TrOOP, stands for the total out-of-pocket costs that a person will spend on prescribed drugs before exiting the donut hole and moving into the catastrophic coverage phase of the Medicare Part D coverage," said Attorney Connelly. But do all drugs count towards the TrOOP? Most do, but there are some guidelines that the Centers for Medicaid have in place.


Prescriptions That Count

So what drugs count towards your total out-of-pocket expense and get you out of the Donut Hole? According to the Centers for Medicaid, they must meet these conditions:

  • Your generic or brand-name drugs are on your Medicare Part D prescription drug plan’s formulary or drug list OR;

  • Your prescriptions were not on your plan's formulary, but you are allowed to count the coverage costs toward true out-of-pocket costs because you requested a coverage determination (formulary exception) that was granted by your Medicare plan, and your non-formulary drugs are now covered by your plan - AND;

  • Your medications were purchased at one of your Medicare plan's network pharmacies, OR;

  • Your Medications were purchased at an out-of-network pharmacy in accordance with the plan’s out-of-network policy (for instance, this was an emergency fill and no network pharmacy was available and you submitted the prescription to your Medicare Part D plan).

"Last week, I was reviewing an estate plan and trust with a client when we discussed the donut hole and prescription costs," stated Attorney Connelly. "His question was around the amount of prescription spending that is needed to emerge from the hole. He was surprised to learn that there are other expenditures that also count towards the TrOOP, and this is important to know, so we have listed them in our blog."

"...there are other expenditures that count towards the TrOOP, and this is important to know..." --- Attorney RJ Connelly III

Other Costs That Count

As Attorney Connelly said, there are other expenditures that count towards the TrOOP besides the spending that occurs within the Donut Hole. Let's take a look at them.

  • The annual initial deductible, that is, the amount a person pays for their Medicare Part D covered prescriptions before their Medicare Part D drug plan begins to pay. Most Medicare Part D plans have an initial deductible and begin with coverage after the deductible is met. So, if your Medicare Part D plan has an initial deductible, you pay 100% of the cost of your medications -- up to your initial deductible limit -- and then your Medicare Part D plan begins to pay along with your co-insurance or co-payment. What you pay during the initial deductible phase counts toward your TrOOP.

  • Your formulary drug cost-sharing, that is, the amount a person pays for each Medicare Part D plan covered prescription drug after their drug plan begins to pay (i.e., your co-payments or coinsurance). So if you have a $30 co-payment for a particular medication that is covered by your Part D prescription drug plan, you get TrOOP credit for the $30. If someone else, like a friend or family member, makes the payment for you (say, $30 in this example), then this amount is also counted toward TrOOP. So if your medication has a retail cost of $100, and your coverage cost is $30, your Medicare plan pays the other $70, and you get the $30 counted toward TrOOP.

  • Any payments a person makes during their plan’s coverage gap. This includes what you pay and what others pay on your behalf (for instance, the brand-name drug manufacturer is paying 70% of your brand-name drug cost while you are in the Donut Hole and this 70% of retail cost is counted toward your TrOOP or Donut Hole exit point). For example, if you purchase a formulary brand-name Medicare Part D drug in the Coverage Gap or Donut Hole - you will get the Donut Hole discount of 75% (you pay 25%) and get credit for 95% of the retail cost toward TrOOP. Using the example from above, if your brand-name formulary drug has a negotiated retail cost of $100, you will pay $25 (25% of the retail price) and $70 (or 70%) will be paid by the Pharmaceutical Industry (the additional 5% will be paid by your Medicare Part D plan, but does not count toward TrOOP). So you pay $25, but you will receive $95 (95%) credit toward your TrOOP.

  • Any payments for drugs made by any of the following programs or organizations on your behalf:

  1. Any money a person enrolled in the Medicare drug plan uses from their Medical Savings Account (MSA), Health Savings Account (HSA), or Flexible Spending Account (FSA)

  2. Payments made by family members or friends

  3. "Extra-Help" from Medicare (Low-Income Subsidy LIS)

  4. Indian Health Services (IHS)

  5. AIDS Drug Assistance Programs (ASAPs)

  6. Most Charities (unless they’re established, run, or controlled by the person’s current or former employer or union or by a drug manufacturer’s Patient Assistance Program (PAP) operating outside Part D)

  7. Qualified State Pharmaceutical Assistance Programs (SPAPs)

  8. The brand-name drug manufacturers providing discounts under the Medicare coverage gap discount program

Catastrophic Coverage

Once you emerge from the "Donut Hole", you enter the Catastrophic Coverage Phase, meaning that medications will now be much less expensive. Part D beneficiaries will be charged $3.95 for those generic and for brand-name drugs, beneficiaries would pay $9.85.


II. Understanding Dual Eligibility

The next part is dual eligibles – those who qualify for both Medicare and Medicaid coverage. Here’s a quick review of these programs separately.


Medicare

Medicare is health insurance for people 65 or older, certain people under 65 with disabilities, and people of any age with End-Stage Renal Disease. Medicare consists of four different parts:

  • Part A – Hospital insurance (inpatient hospital care, inpatient care in a Skilled Nursing Facility, hospice care, and some home health services);

  • Part B – Medical insurance (physician services, outpatient care, durable medical equipment, home health services, and many preventive services);

  • Part C – Medicare Advantage (MA) (Medicare-approved private insurance companies provide all Part A and Part B services and may provide prescription drug coverage and other supplemental benefits); and

  • Part D – The Prescription Drug Benefit (Medicare-approved private companies provide outpatient prescription drug coverage).

Medicare beneficiaries who meet certain income and resource limits may qualify for the Extra Help Program, which helps pay for monthly premiums, annual deductibles, and co-payments.

Individuals can qualify for dual eligibility

Medicaid

The Medicaid Program is a joint venture funded at the Federal and State levels that pay for medical care for families and certain individuals with low incomes and/or limited resources. The Federal Government established guidelines that allow each state to:

  • Establish its own eligibility standards;

  • Determine the type, amount, length, and scope of services;

  • Establish rates of payment for services; and

  • Oversee its own program.

This is why those who apply for Medicaid to assist with nursing home costs must be very careful in meeting the requirements and often require an elder law attorney's help as each state has different guidelines around qualifications. For instance, the Medicaid laws in Rhode Island, Massachusetts, and Connecticut are the same in some areas but different in others which is why navigating the Medicaid minefield may require professional assistance as one mistake on the application could result in a rejection and a loss of assets.


Dual Eligible Beneficiaries

“Dual Eligible Beneficiaries” is the term that describes individuals who are enrolled in both Medicare and Medicaid. Individuals must separately qualify for both Medicare and Medicaid coverage to become dual-eligible beneficiaries. "Roughly half of the dual eligibles first qualify for Medicare based on disability, compared with 17 percent of Medicare beneficiaries who are not dual eligibles, and about half qualify when they turn 65," said Attorney Connelly.

"Roughly half of the dual eligibles first quality for Medicare based on disability...and about half qualify when they turn sixty-five." --- Attorney RJ Connelly III

Medicaid’s eligibility rules vary across states, as we indicated earlier, but most dual eligibles qualify because they receive Supplemental Security Income (SSI) benefits, need nursing home care or have other high medical expenses, or meet the eligibility criteria for the Medicare Savings Programs (MSP) categories. These categories are as follows:

  • Qualified Medicare Beneficiary Program (QMB) – This helps pay for Part A and/or Part B premiums, deductibles, co-insurance, and co-payments;

  • Specified Low-Income Medicare Beneficiary Program (SLMB) – This program helps pay for Part B premiums;

  • Qualifying Individual Program (QI) – Also helps pay for Part B premiums; and

  • Qualified Disabled Working Individual Program (QDWI) – This pays the Part A premium for some people who qualify that have disabilities and are still working.

Now, this alphabet soup of programs comes with a number of qualifiers and disqualifiers. Rather than get into this, we are providing a link to the federal government site which can explain each one of these much better than we could in a blog format. Here it is:

There is also a Dual Eligible Special Needs Plan. This plan is a special type of Medicare Advantage plan that is individually designed to provide specialized benefits, provider networks, and medications/pharmacies to meet the unique needs of the individual.

To be eligible for the Special Needs plan, the individual must:

  • Be eligible for both Medicare and Medicaid;

  • Live in a service area of a Dual eligibility Special Needs plan;

  • Not have end-stage renal disease (unless a waiver is granted);

  • Click on the photo below to learn more.

Enrollment Periods

Unlike others on Medicare, dual-eligible individuals have much more flexibility to make changes to their Medicare coverage throughout the year. If someone is dual eligible, there is a Special Enrollment Period available on an ongoing basis which can be used to:

  • Switch from Original Medicare to a Medicaid Advantage plan

  • Switch Medicare Advantage plans;

  • Disenroll from a Medicare Advantage plan and return back to original Medicare.

For an individual who is dual eligible, they can use this Special Enrollment Period to enroll in, switch, or disenroll from a Dual Eligible Special Needs plan at any time. For instance, if an individual loses their Medicaid eligibility, they get a Special Enrollment Period that allows them to switch Medicare Advantage plan or return to Original Medicare. This special period starts the month the individual receives notice that they are no longer eligible for Medicaid services plus an additional two months. If an individual receives notice that they will lose Medicaid eligibility for the upcoming year, they can make these changes from January 1 to March 31.


Got all that? We know, quite confusing but information that those working in senior care facilities need to know and for those with senior family members who may be enrolling in Medicare for the first time or thinking about changing plans.


If you are confused as to whether a senior or someone with a disability qualifies for these services, click on our link below to go to a government site that can tell you what programs you may or may not qualify for.

Who Pays What?

With all these plans under dual eligibility, the question then becomes, who pays for what? "It can be complicated, as almost all government programs are," stated Attorney Connelly. "Medicare-covered services that are also covered by Medicaid are paid first by Medicare because Medicaid is the payer of last resort. That’s government language that simply means that providers will get money from everyone else first and only collect from Medicaid if there is no one else to get money from."

"Medicare covered services that are also covered by Medicaid are paid first by Medicare because Medicaid is considered the payer of last resort." --- Attorney RJ Connelly III

Medicaid may cover the cost of care that Medicare may not cover or may partially cover, such as nursing homes, personal care, and community-based services. And because there are income and resource standards for full Medicaid eligibility, the federal government gives each state has the right to adjust those limits. Thus the importance of long-term care planning to avoid financial problems. Click here to explore Medicaid Planning with our office.


Other Medicaid Services and Plans

Like the other plans, we described earlier, if you meet the requirements in your state, you may qualify for one of these programs;

  • Age, blind and disabled Medicaid (ABD) – those with this plan have coverage for a broad range of services including doctor’s visits, hospital care, and medical equipment. However, ABD Medicaid may not provide appropriate coverage if long-term care is needed. Click on the photo below for more information.

  • Medicaid home and community-based service (HCBS) waiver programs: these programs provide general health coverage and coverage for certain services to help you stay at home or in a community-based setting (for example, in an assisted living facility). Covered services may include personal care, homemaker services, case management, adult daycare, skilled nursing care, and therapy services. To qualify, you must meet state-specific functional eligibility criteria.

  • Institutional Medicaid – Includes coverage for nursing home services including room and board, nursing care, personal care, and therapy services.

SHIP Services

We want to close out this blog with information about the State Health Insurance Assistance Program (SHIP). SHIP provides Medicare beneficiaries with information, counseling, and enrollment assistance. Its mission is to strengthen the capability of grantees to support a community-based, grassroots network of local SHIP offices that assist beneficiaries with their Medicare-related questions.


SHIPs present and distribute information to groups and individuals to inform them on Medicare benefits, coverage rules, written notices and forms, appeal rights and procedures, and more. They also provide free, in-depth, one-on-one insurance counseling and assistance to Medicare beneficiaries, their families, friends, and caregivers.


SHIPs assist people in obtaining coverage through options that include the Original Medicare program, Medicare Advantage (Part C) Plans, Medicare Prescription Drug (Part D) Plans, and programs designed to help people with limited incomes pay for their health care, such as Medicaid, the Medicare Savings Program, and the Low-Income Subsidy. They can help people compare Medicare Supplemental (Medigap) insurance policies and explain how these and other supplemental insurance options (e.g., insurance plans for retirees) work with Medicare.


These programs also provide information on long-term care insurance and, when needed, refer beneficiaries to agencies such as the Social Security Administration and local Medicaid offices for additional assistance. Many SHIP counselors are volunteers who are trained and certified to help navigate systems for older adults and some people with disabilities.



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