Out-of-pocket costs for participants in the Medicare Part D program will shrink in 2011. By Kimberly Lankford, Contributing Editor December 27, 2010 How does Medicare Part D’s new 50% discount on brand-name prescription drugs work for seniors affected by the so-called doughnut hole? Doesn’t it just mean that we end up in the doughnut hole for longer?The prescription-drug coverage gap, known as the doughnut hole, has been the big downside of the Medicare Part D program since it was launched in 2006. But beginning in 2011, the gap will start to shrink. Once your total drug costs reach $2,840 for the year (including your share and the insurer’s share of the costs), you will get a 50% discount on your brand-name drugs. Your pharmacy will apply the discount automatically when you purchase the medications. After your out-of-pocket costs reach $4,550 for the year, you qualify for catastrophic coverage and your Part D plan picks up most of the tab. As you mention, this discount could seem to be a lot of smoke and mirrors -- merely leaving you in the doughnut hole for longer -- if they hadn’t changed the way the doughnut hole is calculated, too. To avoid this problem, the entire cost of the drug -- before the 50% discount is applied -- counts toward the amount needed to fill the coverage gap. If the drug costs $100, for example, and you pay $50, the entire $100 will count toward your out-of-pocket costs that trigger catastrophic coverage. The discount comes off the price that the Part D plan has negotiated with the pharmacy for that specific drug, says Jim Turner of Humana. The dispensing fee (often $2 to $5) isn’t discounted, but it is added to the discounted amount of the prescription and does count toward the $4,550 in out-of-pocket costs. Also starting in 2011, you’ll only pay 93% of the cost of generic drugs, with the government picking up the remaining 7%. But in this case, only the 93% of the cost that you pay yourself counts towards leaving the doughnut hole. Got a question? Ask Kim at email@example.com.