What a confusing topic this is! For anyone with a prescription drug plan that enters into the ‘donut hole’ or coverage gap, it’s difficult to know what it will take to get out of it! So let’s put some thought into this, let’s use some examples and maybe then will we actually understand how it works. So first we need to explain each stage, how much money one pays for drugs before, during and after the donut hole.
So let’s break things down, according to Medicare.gov there are four stages of drug coverage.
1 – Deductible
2 – Initial Coverage
3 – Coverage Gap (Donut hole)
4 – Catastrophic
Basically this means that your drug cost will differ depending on what stage you are in. As one would assume you normally start with stage 1 Deductible. But what does that mean to me? The answer depends on several things, a) what drugs I take b) what deductible my plan has and c) how much do my medications cost. All drug plans group their medications into tiers, usually tiers 1-5 with tier 1 being less expensive to tier 5 being VERY expensive. So one will always need to look at the list of drugs that are covered in their plan, called a formulary, to see what tier their drug is in (note: a medication tier placement could differ from one company to another).
Deductible means that I will have to pay that dollar amount before the health plan starts helping me to pay for the medication.
Deductible example: In January Mrs. Smith got prescribed a drug she saw advertised on TV (those are usually expensive), which costs $500 for a months supply, yikes! She looked into her plan benefits and saw her plan has a $175 Rx deductible. This means that her plan expects her to pay $175 out of the $500 before they start helping her with the rest of the cost.
At the Pharmacy Mrs. Smith pays $175. So now the prescription deductible has been met (for the remainder of the year) and Mrs. Smith moves into the Initial Coverage stage. But since there are still $325 left to cover the entire cost of the drug we need to know what the plan will cover.
In this stage your cost will depend on the tier your medication falls under, usually a co-pay (e.g. $20) or a percentage (e.g. 20%). So let’s go back to Mrs. Smith example but let’s add tier cost to know what she must pay from the remaining $325.
- 30 day supply:
- Tier 1 – $1 co-pay
- Tier 2 – $4 co-pay
- Tier 3 – $40 co-pay
- Tier 4 – $90 co-pay after deductible
- Tier 5 – 35% after deductible
- Deductible of $175 only applies for tier 4 & 5.
Since the medication is very expensive we will say that it’s a tier 4 drug therefore on top of having to pay the $175 deductible Mrs. Smith will have to pay an additional $90 co-pay as her portion of the remaining cost. Her prescription plan will pay the remaining $235.
So let’s recap, the medication total cost was $500. Since it was a tier 4 drug the deductible of $175 had to be paid, out of the remaining $325 Mrs. Smith had to pay an additional $90 as her co-pay and the plan paid the remaining $235. So in total Mrs. Smith paid $265.
Let’s take it into month two, Mrs. Smith goes to refill this very same drug in February. The total drug is still $500 but since she already paid her yearly deductible last month, she’s only has to pay her $90 co-pay and the plan pays the remaining $410.
So what about the other 2 stages, when do they come into play? Let’s add one additional detail to the Initial Coverage stage. Once the total cost of the drugs being filled reaches a set amount then Mrs. Smith would move into the next stage. For 2017 the Initial Coverage limit for all prescription drug plans is $3700. So that means that Mrs. Smith will continue to pay her $90 co-pay until the total drug cost of $500 adds up to $3700, which means she’ll only accumulate it as she refills her medication.
So assuming Mrs. Smith only takes this one very expensive drug, it’ll take 8 fills to reach a total drug cost of $3700, it’ll actually surpass it by $300 but the point is Mrs. Smith won’t enter the Donut Hole until August. What accumulates to the $3700 Initial Coverage Limit is not just what Mrs. Smith paid as her cost but also what her prescription plan paid.
Coverage Gap (Donut Hole)
In 2017 when you enter the Donut Hole this is what you must pay: Generic drugs you’ll pay 51% of the drug cost and 40% of the brand name drug cost.
So in Mrs. Smith case if she were to get her medication filled in September she will have to pay 40% of $500 which equals to $200. Who pays the remainder? The drug manufacturer pays 50% and her plan will pay the remainder 10%.
When does one get out of the donut hole and what contributes to the maximum one has to pay in this stage? Let’s do a month to month review so far of Mrs. Smith utilization.
- January – Mrs. Smith paid $265 (deductible + co-pay). The plan paid $265. Her total out-of-pocket is $265. Total medication cost $500.
- February – Mrs. Smith paid $90 co-pay. The plan paid $410. So her total out-of-pocket has been $355. Total medication cost $1000.
- March – Mrs. Smith paid $90 co-pay. The plan paid $410. So her total out-of-pocket has been $445. Total medication cost $1500.
- April thru August – Mrs. Smith pays $90 each month as co-pay and the plan pays $410. So her total out-of-pocket $895. The total medication cost has now reached $4,000. At this stage Mrs. Smith will enter the Donut Hole because the total cost of the drug has surpassed the $3700 Initial Coverage limit.
- September – Mrs. Smith now pays $200, (40% of the total drug cost) on top of that the manufacturer covers 50% of the drug cost. What Mrs. Smith paid and the manufacturer discount accumulates towards her total out-of-pocket, that is $200+$250=$450. So for September her total out-of-pocket has reached $1345. The total drug cost has reached $4500.
- October-December – Mrs. Smith pays $200 each month and the manufacturer pays $250. At the end of the year her total out-of-pocket reaches $2695. The total drug cost is $6000.
So in this scenario Mrs. Smith doesn’t get out of her Donut Hole because her total out-of-pocket never reached $4950. The total drug cost changes you from the Initial stage into the donut whole but doesn’t affect when you enter the Catastrophic stage.
Additional information while in Donut Hole:
- There is no manufacturer discount for generics, only Mrs. Smith cost (51% of the drug price) will count towards her total out-of-pocket cost.
When someone enters this stage, which requires that their total out-of-pocket reach $4950, the cost of generics will be the greater of $3.30 or 5% of drug cost. For brand name it’ll be the greater of $8.25 or 5% of total drug cost. Anyone that enters this stage will remain on it for the rest of the year.
Note that individuals who get Extra Help or Low Income Subsidy will have a different cost share as described above. For example if they get 100% Extra Help they are automatically moved into Catastrophic Stage, they don’t have to worry about the Deductible, Initial Coverage stage or Donut Hole. Need help figuring out if you qualify for Extra Help? Don’t hesitate to reach out to me.
We’ve gone through the different stages and explained what a member must pay in each stage. Most importantly we clarified what goes towards your Donut Hole. Once the total drug cost accumulates to $3700 one enters the Donut Hole but to get out of it the members total out-of-pocket cost much reach $4950. In the Coverage Gap the members cost share of 51% for generics and 40% for brand drugs count towards their total out-of-pocket and as a ‘bonus’ the manufacturer 50% discount amount also counts.
Like what you read, well I’m glad. Don’t hesitate on leaving a comment or requesting additional information.
Starting April 1st and until June 31st beneficiaries that enrolled into Medicare during the General Enrollment Period (Jan. 1st to Mar. 31st) will have an opportunity to Enroll into an MAPD plan to to be effective July 1st. Every year there is a number of individual that will go through this process and it’s important that they don’t miss their MAPD enrollment deadline.
After June 31st the SEP for these beneficiaries closes and they will not be able to enroll into an MAPD plan until the Annual Enrollment Period. Unfortunately many learn this deadline the hard way, they believe the SEP extends an additional three months. It’s not until they receive an application denial that they realize their mistake and at this point it’s too late.
So don’t let this happen to you or your clients. Submit enrollments before July 1st.
For more practical information on Medicare please register for my blog and I’ll keep you abreast of these important reminders.
To which circumstances does the 8 month Special Enrollment Period (SEP) apply to?
- Enrolling into part B original Medicare
- Enrolling into a part D plan
- Enrolling into an MAPD plan
Some have come to believe it’s all of the above but that’s not correct. Now, there is a reason why some believe this to be the case and the reason is not surprising at all.
To get straight to the point, the 8 month SEP applies to enrolling into original Medicare part A and/or B when someone disenrolls from a commercial group policy. In the Medicare & You book it states the following on page 23 under the heading Special Enrollment Periods: “If you (or your spouse) are still working, you may have a chance to sign up for Medicare during a Special Enrollment Period. If you didn’t sign up for Part B (or Part A if you have to buy it) when you were
first eligible because you’re covered under a group health plan based on current employment (your own, a spouse’s, or if you’re disabled, a family member’s), you can sign up for Part A and/or Part B:
■ Anytime you’re still covered by the group health plan ■ During the 8-month period that begins the month after the employment ends or the coverage ends, whichever happens first“.
So if we follow this scenario a bit further one would could ask, “when can someone enroll into an MAPD plan if they enrolled into part B using the 8 month SEP?”
The answer is simple, they must apply for the MAPD plan before the part B becomes effective. Here is the “Gotcha!”, if you wait until after part B becomes effective you’ve lost your SEP window to enroll into the MAPD plan. If you don’t qualify for another SEP you would have to wait until the Annual Enrollment Period (AEP) to apply. Let’s use an example to clarify this statement.
Say Mrs. Smith became eligible for Medicare part A and B in August 1st 2015 and chose not to enroll into part B and instead keep her group coverage. Effective January 1st 2017 she decides to retire and thus her group coverage ends 12/31/2016. She was unaware that she could enroll into Medicare part B right after her group coverage ended and so unintentionally delays it an additional four months. But that’s ok, in April she applies for Part B using her SEP (8 month SEP) and is approved for it to become effective May 1st. Now here is the tricky part, before her Part B becomes effective she’s able to apply for an MAPD plan to be effective May 1st. During the month of April she must submit an application for the MAPD plan, if she were to wait until May to apply she would be denied for not having a valid enrollment period.
There are some exceptions to this enrollment deadline, for example if someone were to qualify for another SEP (e.g., LIS, Medicaid), they would be eligible to apply for an MAPD plan every month.
So remember if you delay part B enrollment you must enroll into an MAPD plan before your part B becomes effective otherwise you’ll likely be waiting for the AEP to get another chance to enroll.
There you have it, the 8 month SEP is for Original Medicare after losing group coverage. Oh and if I left you wondering why so many confuse this Medicare SEP with others, well it’s simple: it’s Medicare and it’s all very confusing.
Hello and welcome!
First I want to introduce myself, I’m Gabriel Liranzo a Medicare Broker Manager for one of the largest health insurance companies in the U.S. I oversee over 700 independent sales agents that sell Medicare Advantage (MAPD) and Prescription Drug Plans (PDP) in the Atlanta, GA area. My role requires (between other things) that I train, motivate and educate independent agents in the world of MAPD and PDP products.
I’ve been in the insurance business for 11 years now and I started in one of the most important roles health insurance companies have, a customer service representative (CSR). I believe that is one of the most important roles because that is the first point of contact for most members with an insurance company. I’ve moved through several positions in my career and they include, CSR senior lead (oversaw a team of 20 CSR’s), broker support for individual under 65 products, account manager for small group commercial products to my current role as a Medicare broker manager. So you could say I’ve been around the block when it comes to health insurance.
I’m also a full time father of three and husband of one beautiful lady. If you want to know a little bit more about me you can click on my profile picture. Check back later if you want to check out our family blog.
Now that you know a little bit about me let’s get started.
Ask Gabe: Take one.
My first topic comes directly from the field, one of my agents reached out to me because one of her clients has lost part B coverage! She wants to know what she could do to help him. So join me as we address her question.
1. Can a Medicare Advantage member who’s lost part B coverage for non payment of their part B premium reinstate their MAPD plan on July 1st?
The short answer is no but there are some exceptions (e.g. LIS). But don’t stop reading just yet as there is more to it. Let’s discuss this particular scenario so you can understand the reason for my response.
This agents client became eligible for part A and B of Medicare last year in 2016 when he turned 65, at which time he enrolled into part B (part A was automatically added as it is in most cases). He didn’t qualify for Extra Help or Low Income Subsidy (LIS) because of his income. When he became Medicare eligible he also enrolled into an MAPD plan or part C, he was so happy with his decision that he went on a long trip. Unfortunately he didn’t elect to have his part B premium deducted out of his social security check and as you can imagine while traveling he forgot to pay his Medicare part B premium. Yikes!
What were the consequences? His insurer had to terminate his MAPD coverage. Why? Well in order to enroll and stay an MAPD plan one must have Medicare part A & B and since he lost the latter he got the ax.
When the client learned that he lost his coverage he called Medicare frantically trying to reactivate his part B coverage. In the end he was able to successfully do it during the Medicare General Election Period (January 1st – March 31st). The problem is that he now has to wait until July 1st for his part B coverage to begin. Which now leaves us with the question at hand.
Where to find the answer.
The best resource besides askgabe.blog is the Enrollment and Disenrollment Guidelines MAPD that the Center for Medicare and Medicaid Services (CMS) issues out every year. It’s a pretty big document but it contains very valuable information, it’s basically the rules that MA and or PDP insurers must follow regarding enrollment and terminations. If you are having trouble sleeping, give those guidelines a read and you’ll find yourself drifting away quickly.
To navigate the 280 plus page PDF document there are three options, first there is the clickable index, second is pressing [Control+F] to open a search box where you can type key words you want to find and lastly, the non-recommend third option, scrolling forever till you find what your looking for.
The first area in the index I would click on is 50.2 – Required Involuntary Disenrollment because here you’ll have the proof that an MA company must terminate a member when they lose entitlement to part A or B of Medicare. From there you can navigate to section 50.2.2 where it gives additional details. See screenshot below.
The guidance is clear but for added reference you can click on Exhibit 14 and see a model template of the letter our client received. It basically contains almost the same language as above except that it includes when their MAPD plan is to terminate, a contact option if they believe the information is wrong and a heads up on enrolling into a Prescription drug plan (part D) so as not to incur a permanent penalty for not having creditable prescription coverage.
It’s important to highlight that in this model letter it doesn’t say that one is able to enroll back into an MAPD plan once they can reinstate their part B coverage, if that was an option it would clearly state it. It’s true one can enroll back into an MAPD during a qualifying SEP or the Annual Enrollment Period (AEP). The problem is that reinstating part B effective July 1st after losing coverage for non premium payment isn’t a qualifying SEP. There is an SEP for those that are enrolling into part B for the first time during the General Election Period but that’s not the scenario we are working with.
This bring us to the next question.
Is there anything we could do to help this beneficiary?
The short answer is yes. Since he lost creditable prescription coverage he is eligible to enroll into a PDP plan but he must do it within two months after his MAPD plans termination. How do I know that? For that I had to reference another SEP listed on a separate Enrollment and Disenrollment Guidelines specifically for PDP plans. It’s found in the same area you would find the one for MAPD plans, here is a link to make your life easier: Enrollment and Disenrollment Guidelines for PDP. Page 34 of this guidelines we will find the following SEP:
So while it may not be the solution we were hoping for, this does help the beneficiary get back his prescription coverage and avoid any permanent part D late enrollment penalties. So where does that leave us in regards to this client? Unfortunately he will have to wait until the AEP to enroll back into an MAPD plan effective 1/1/18. In the meantime he will have Part A and a prescription drug plan (if he used the SEP above) through June. Then come July he’ll have part B and will continue to have it until the end of the year.
Alternative SEPs worth looking into.
As I previously stated the Medicare beneficiary in our scenario didn’t quality for any SEP that would give him a break. But one should always check if one applies. On the E & D Guidelines there are several SEPs that could have granted enrollment into an MAPD plan effective July 1st, some include:
- Low Income Subsidy – as long as one has Extra Help to pay for prescriptions they can enroll into an MAPD/PDP plan every month
- Dual Eligibility, if one is eligible for Medicaid they also have a continual SEP
SEP for Enrollment Into a Chronic Care SNP plan – if beneficiary is eligible for a chronic plan they’ll have a one time SEP to enroll
Less likely SEPs could include:
- Change in residency, a beneficiary moves to a new county where they are now eligible for new plans or where their current plan is not available
SEP to Enroll in an MA Plan, PDP or Cost Plan With a Plan Performance Rating of Five (5) Stars
The Medigap or Supplement route
If Medicare beneficiary doesn’t qualify for any SEP to enroll him during July 1st, he does have the option to enroll into a supplement plan. Note that they’ll be subject to the underwriting requirements but for many it’s a very viable option and definitely better than just Original Medicare.
So the moral of the story is, don’t forget to pay your part B premium otherwise you may have to contend with less than favorable health plan choices.