Updated 25 Jan 2024 
4 Minute Read
On January 1, 2020, the Donut Hole closed completely. People no longer pay more than 25% for brand-name and generic drugs. This is the same amount you pay from the time your deductible is met to the point you reach the out-of-pocket spending limit.
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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Phase 1: Deductible
Your plan doesn’t begin to pay for prescription drugs until you meet your yearly Part D deductible. It starts at the beginning of the year and ends when you meet your deductible. You pay full price for prescriptions.
Phase 2: Initial coverage
Your plan’s coverage begins once you hit your deductible. It starts after you’ve hit your Part D annual deductible and ends when you and your plan have spent a total of $4,430, including your deductible. You pay your plan’s copays or coinsurance.
Phase 3: The donut hole
Your plan’s coverage begins once you and your plan have spent a total of $4,430 and ends when your out-of-pocket costs for prescriptions reaches $7,050. You are responsible for covering the cost of up to 25% of your prescriptions, but you stop paying the coinsurance or copays you paid before. Dispensing fees are also covered.
Phase 4: Catastrophic coverage
Your plan’s coverage begins when your out-of-pocket costs for prescriptions reaches $7,050. This total accounts for your annual deductible, coinsurance, and copayments, 95% of the cost of covered drugs, and 25% of the cost of pharmacy dispensing fees for covered drugs.
Health Insurance Marketplace
If you already have Medicare, you are not affected by the Marketplace, but you still get to enjoy extra benefits thanks to the Affordable Care Act like the following:
- A discount of more than 50% on covered brand-name drugs if you hit the Part D prescription drug coverage gap (“Donut Hole”).
- A host of preventive tests and screenings — including cancer screenings — most at no cost to you.
When Does the Medicare Donut Hole End?
Millions of Medicare Part D beneficiaries will be relieved to know that the Medicare Part D coverage gap, also known as the Donut Hole, has closed the gap earlier than expected. The Donut Hole has been an issue for many Part D beneficiaries and their brand name prescriptions.
The federal government had been looking for ways to close this gap by lowering the percentage of beneficiaries pay during the Donut Hole period. Previously, the gap was scheduled to close in 2020. However, as a result of the budget deal signed by President Trump in early 2018, this relief for brand-name medication comes a year earlier.
So, on January 1, 2020, the Donut Hole closed completely. People no longer pay more than 25% for brand-name and generic drugs. This is the same amount you pay from the time your deductible is met to the point you reach the out-of-pocket spending limit.
Medicare Part D Plans Without the Donut Hole
Some Medicare Part D plans provide coverage when people enter the coverage gap. However, the benefits are usually limited to specific prescriptions. These plans also typically have higher monthly premiums.
People can avoid the coverage gap if they qualify for Extra Help or an assistance program in their state of residency. For example, those with limited assets and incomes below the threshold can be eligible. Guidelines vary by state, so those who need help determining if they qualify can speak to an insurance agent.
Do Medicare Advantage Plans Cover the Donut Hole?
It is possible to get a Medicare Advantage Plan that covers the Donut Hole. But, again, these plans usually have higher premiums and restrictions on medications.
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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