Updated 17 Oct 2024 
4 Minute Read 
In 2020, the donut hole (coverage gap) under Medicare Part D was technically closed, meaning that beneficiaries no longer had to pay more than 25% of the cost for brand-name and generic drugs during the coverage gap. However, the structure still required beneficiaries to share in drug costs until reaching catastrophic coverage.
Starting in 2025, under the Inflation Reduction Act, the donut hole phase will be completely eliminated. Instead of paying a percentage of drug costs during a gap, beneficiaries will have a new annual $2,000 out-of-pocket cap on prescription drug costs. Once this cap is reached, there will be no additional costs for covered medications for the remainder of the year.
This new design simplifies coverage and provides better financial protection for Medicare beneficiaries, especially those with high prescription drug needs.
This information is purely for educational purposes.
The Donut Hole refers to a gap in prescription drug coverage under Medicare Part D.
All Medicare Part D prescription drug plans have four stages. At the beginning of each year, Medicare announces how much money beneficiaries will have to spend to move through each coverage stage. These thresholds and the amount that beneficiaries pay in the gap changes annually to eliminate the gap.
Typically, once coverage begins at the start of the year, you enter the first stage of the Medicare Part D prescription drug plan, known as the Deductible stage. Here, a Medicare beneficiary will be required to pay 100% of all prescription drug costs until the deductible is met. However, if you are a Medicare SilverScript member, those plans do not require a deductible of any kind, and you skip that stage altogether and go to stage two, called the Initial Coverage stage.
After you meet your deductible, you move to the Initial Coverage stage. In this stage, your plan will help pay towards your covered prescriptions. For example, a Medicare Part D prescription drug plan beneficiary will pay a copayment or coinsurance, and Medicare Part D will take care of the remaining balance of the drugs.
Once a beneficiary hits the $3,280 threshold, they enter what is known as the Medicare Donut Hole. While in the Donut Hole, a beneficiary must pay 25% of all brand-name drugs and 37% for generics – an amount that could be significantly more than what you were paying before you hit the Donut Hole.
The final part is the Catastrophic coverage stage, which starts once you have paid $5,100 in out-of-pocket costs for covered drugs. During this final stage of the Medicare Part D prescription drug plan, beneficiaries will be required to only pay a significantly lower copayment or coinsurance for their drugs, all the way until the end of the plan year.
Once the plan year is over, all Medicare beneficiaries in the Part D prescription drug plan will revert to the Deductible stage.
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All Medicare Part D plans follow a structured system that moves through four stages:
Phase 1: Deductible
At the beginning of each plan year, you are responsible for paying 100% of your prescription drug costs until you meet your plan’s deductible. In 2025, this deductible is set at $590 for standard plans
Phase 2: Initial Coverage
Once your deductible is met, you enter the Initial Coverage phase, where you and your plan share the costs of your prescriptions. You will typically pay 25% of the drug costs, with your plan covering the rest. This phase continues until your total spending reaches $4,660.
Phase 3: Elimination of the Donut Hole
The donut hole or coverage gap will be eliminated starting in 2025. Instead of entering a separate gap in coverage, once your total drug spending reaches the $4,660 limit, you will continue paying 25% of the costs until you hit the new $2,000 out-of-pocket maximum. After that, you no longer have any out-of-pocket costs for your prescriptions for the remainder of the year
Phase 4: Catastrophic Coverage
Once your out-of-pocket costs reach $2,000 in 2025, you will enter the catastrophic coverage phase. In this phase, Medicare and your plan cover all costs, and you won’t have to pay anything further for covered drugs for the rest of the year
Medicare Part D Plans Without the Donut Hole
While the donut hole is being eliminated in 2025, some Medicare Part D plans continue to offer robust coverage that includes extra help for people with low incomes, which limits their out-of-pocket costs even further
Fortunately, the Donut Hole is a thing of the past. However, if you need help finding a plan that provides the coverage you need, contact a licensed insurance agent today.
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