More Details on Doughnut Hole, Income-Related Part D Premiums

In just a few short weeks, the doughnut hole will begin to close in earnest. Until now, consumers who reached the doughnut hole—the coverage gap in Medicare’s prescription drug benefit—have been responsible for paying the full cost of their drugs. But starting next year, these consumers will receive a discount on drugs they purchase while in the gap. This change to the Medicare drug benefit, also known as Part D, is the result of the Affordable Care Act (ACA), which gradually phases out the doughnut hole through the year 2020, when it will be completely eliminated. In 2011, people who enter the gap will receive a 50 percent discount on brand-name drugs and a 7 percent discount on both generic drugs and drugs compounded at the pharmacy. Furthermore, the 50 percent discount will count toward consumers’ out-of-pocket limit, which is used to determine when they get out of the doughnut hole and enter catastrophic coverage. This means Medicare consumers will spend less while in the doughnut hole.

Also as a result of the ACA, the Social Security Administration (SSA) published an interim final rule regarding the assessment of higher Part D premiums for higher-income Medicare consumers beginning next year. From 2011 through 2019 individuals who have modified adjusted gross income (MAGI) at or above $85,000 per year and couples whose MAGI is at or above 170,000 per year will be subject to additional premiums for Part D. The premiums will be assessed on a sliding scale that is pegged to income levels. The extra amount will, in most cases, be directly deducted from the individual’s Social Security check. While the income thresholds of $85,000 and $170,000 will be frozen through 2019, SSA may change them after that year.  

The formula used to calculate MAGI is based on federal taxes filed two years prior to the year when the income-related premium assessment takes place. As under Part B, the rule states that individuals may request that SSA use more current tax data to calculate MAGI if they have experienced a major life-changing event, as defined by the regulations, or may appeal the misapplication of an income-related premium expense. 

Read the Medicare Rights Center’s fact sheet: Health Reform and Medicare: The Doughnut Hole in 2011.

Read more about income-related Part D premiums.

Read the interim final rule on income-related Part D premiums.