Most Medicare Part D prescription drug plans have a coverage gap. More commonly, this has been known as the “donut hole.”
The “donut hole” essentially refers to where a drug plan may reach its limit on what it will cover for drugs. Once you and your Medicare Part D plan have spent a certain amount on covered prescription drugs during a calendar year ($4,430 in 2022), you reach the coverage gap and are considered in the “donut hole.”
Not everyone will enter the “donut hole,” and people with Medicare who also have Extra Help will never enter it.
What happens when you’re in the “donut hole”?
When you reach the coverage gap (are in the “donut hole”) what you pay will differ for the brand-name drugs and generic drugs covered by your Medicare plan.1
For brand-name drugs:
- You’ll pay no more than 25% of the cost of the drug and 25% of the dispensing fee.
- You’ll pay a discounted rate if you buy your medications at a pharmacy or through the mail.
- What you pay and what the drug manufacturer pays (95%) will count towards out-of-pocket spending that helps you eventually get out of the “donut hole.”
For generic drugs:
- You’ll pay 25% of the price. Medicare pays 75% of the price.
- Only the amount you pay will count towards getting you out of the “donut hole.”
NOTE: Some plans may have coverage in the gap, so if this is true for you, you will get a discount after the plan’s coverage has been applied to the drug’s price.
Is the Medicare Part D “donut hole” going away?
Not exactly. The “donut hole” isn’t really going away, because Medicare Part D still has four payment stages. The “donut hole” is the third stage, and you move through the Part D payment stages based on how much you, your plan, and others on your behalf have paid for your drugs during the year.
Leaving the Part D “donut hole”
In order to leave the “donut hole,” your total out-of-pocket costs must reach $6,550. If you hit this number, then you enter the catastrophic payment stage. Your plan pays most of the cost for your drugs in the catastrophic stage. You may pay a small copay or coinsurance, and you will remain in this stage for the rest of the year.
Your out-of-pocket drug costs, including copays, coinsurance amounts and your deductible, if any, count toward the dollar limits. Other amounts that contribute to reaching the limits include:
- What your plan pays for your drugs in the initial coverage stage
- Discounts provided by drug manufacturers in the coverage gap stage
- Amounts paid by others on your behalf, such as financial assistance programs, in any payment stage
Tips for navigating the Part D coverage gap
It’s best to avoid the coverage gap all together if you can. People who reach the coverage gap need to get through it wisely so they can get the most from their Part D coverage.
Drug costs can take a bite out of your budget. Here are some ideas to help turn that bite into a nibble, even if you are unlikely to reach the coverage gap.
- Plan ahead by estimating your annual drug costs and how you will handle paying for your medications if you do enter the Part D coverage gap stage.
- Talk with your doctor and pharmacist about lower-cost drug alternatives.
- Explore options for getting your prescriptions that may offer discounted prices.
- Opt for generic over brand-name drugs where possible.
- Use in-network pharmacies.
Final tip: It’s helpful to understand the Medicare Part D payment stages
The “donut hole” can seem overwhelming, but it’s just one of four payment stages with Medicare Part D. The payment stage you’re in determines the amount you pay when you fill a prescription. You always begin each year in the deductible stage or the initial coverage stage, depending on your plan. A final helpful tip is to learn about each of the Part D payment stages and understand how your financial responsibilities will change in each.
Learn more about the Part D cost stages here.
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