Taking the bite out of the Medicare “donut hole”

The Medicare donut hole is catching countless seniors unaware

As we get older taking prescription drugs is a fact of life and the costs of these drugs continue to skyrocket.

In simpler times retirement planning was less complicated than it is for us today. There were more defined benefits retirement plans that provided you with a steady pension, and income growth was more pronounced.

That’s not the world we live in today

medicare donut hole

Related: Before retiring try spending like a retired person

While we will likely be on a fixed income, many of our day to day costs are not fixed. The result is retirees are often scrambling to balance the cost of everyday living and the increasing costs of prescription drugs on a fixed income.

Prescription Drug Costs Doubled in Just 7 Yearsone-year supply of some meds tops $11,000

Related: The skyrocketing cost of long term care grounded with a reverse mortgage

That was the headline in a recent AARP Bulletin and needless to say it paints a pretty grim picture.

AARP’s Rx Price Watch looked at more than 600 specialty, brand name and generic drugs most widely used by older Americans from 2006 to 2013.

A few (fun) facts:

  • Through 2012 the average annual price increases for the selected drugs ranged from 3.6 to 7.6%
  • In 2013 the average increase was 9.4%, with brand-name drugs jumping nearly 13%
  • The average retail price for a year’s supply of the medications more than doubled from $5,571 to $11,341 in 2013
  • Prices for specialty drugs, such as for cancer and hepatitis soared to $53,384 – 18 times more than for a brand name drug ($2960) and 189 times higher than for a generic drug ($283)

People with Medicare have the option of paying a monthly premium for outpatient prescription drug coverage. This prescription drug coverage is called Medicare Part D.

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What is the Medicare “donut hole”?

The basic Medicare Part D coverage works like this:

  • You pay out-of-pocket for monthly Part D premiums all year.
  • You pay 100% of your drug costs until you reach the $310 deductible amount.
  • After reaching the deductible, you pay 25% of the cost of your drugs, while the Part D plan pays the rest, until the total you and your plan spend on your drugs reaches $2,800.
  • Once you reach this limit, you have hit the coverage gap referred to as the “donut hole,” and you are now responsible for the full cost of your drugs until the total you have spent for your drugs reaches the yearly out-of-pocket spending limit of $4,550 (the equivalent of a $375 car payment).
  • After this yearly spending limit, you are only responsible for a small amount of the cost, usually 5% of the cost of your drugs.

You may have read in the 2010 Medicare & You Handbook that there are some Medicare Part D plans that offer coverage in the donut hole—but these plans may charge a higher monthly premium.

Whether you pay the higher premium for Medicare or cover the “donut hole” out of pocket the end result is less money each month to meet everyday expenses. For seniors on fixed incomes prescription drugs are becoming an even greater financial burden.

Related: Cover everyday expenses with your personal retirement paycheck

The New Reverse Mortgage to the rescue

With the costs of prescription drugs skyrocketing, it becomes increasingly difficult for seniors to manage their drug costs and their everyday expenses.

The New Reverse Mortgage offers a number of options that can be customized to meet your individual needs to cover the Medicare donut hole.

  • The Retiree’s Equity Line of Credit or RELOC gives you the flexibility to draw on the funds as needed for the coverage gap (donut hole).
  • You can also elect to have a fixed tax free monthly payment that will give you the peace of mind knowing the funds will be available as long as you live in your home.
  • The term option gives you a fixed tax free monthly payment for a predetermined period of time.

Related: 25 retirement solutions with The New Reverse Mortgage

The New Reverse Mortgage isn’t for everyone…but it could be!

If you’re still wondering if a Reverse Mortgage is the right solution for you but you’re not ready to sit down with one of our Reverse Mortgage Experts, then we’ll be happy to mail (or email) you Use Your Home to Stay at Home which is the official federally approved consumer booklet for those considering a reverse mortgage.

Some of this information first appeared in the April 2016 AARP Bulletin and on the Medicare Blog

From the desk of Greg Cook

greg@reverselendingexperts.com; 951.265.4532​