The Medicare Part D Donut Hole Disappears in 2025
Key takeaways:
The Medicare Part D coverage gap known as the “donut hole” will end in 2024. As of January 1, 2025, Medicare Part D plans will have a $2,000 out-of-pocket limit. If you reach that threshold, your plan will pay for all of your covered medications in full for the rest of the year.
The changes are designed to reduce prescription medication costs for millions of older adults and people with disabilities who have Medicare Part D plans.
By eliminating the donut hole, Medicare Part D prescription plans will switch to a three-phase design that includes the deductible phase, initial coverage phase, and catastrophic coverage phase.
The Manufacturer Discount Program will replace the coverage gap. In the past, manufacturer discounts and other payments on an enrollee’s behalf counted toward their out-of-pocket spending. Starting in 2025, this will no longer be the case.
Table of contents
At one time, reaching the Medicare Part D donut hole signaled a pause in prescription medication coverage. In recent years, however, health plans and medication manufacturers have picked up more of the costs for enrollees in the donut hole, also known as the Medicare Part D coverage gap.
Medicare Part D plans were designed to have four phases:
Deductible phase: This is when you pay all prescription costs until you meet your deductible, which is $545 in 2024.
Initial coverage phase: This is when cost-sharing with your insurance plan begins.
Coverage gap or donut hole: This is a pause in coverage or — in recent years — a cost-sharing arrangement similar to the initial coverage phase.
Catastrophic coverage phase: This is when you have no more out-of-pocket costs for filling covered prescriptions.
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By 2024, you entered the Part D coverage gap when your out-of-pocket spending reached $5,030. The only potential relief from cost-sharing was when your spending hit a certain amount — $8,000 in 2024 — and you entered the catastrophic coverage phase, meaning you had no more out-of-pocket costs for the year.
Starting on January 1, 2025, the donut hole will be eliminated. And there will be a Part D $2,000 out-of-pocket spending cap, after which enrollees won’t pay anything for covered medications for the rest of the year.
What is the Medicare Part D donut hole?
In the past, the Medicare Part D donut hole was a phase in which enrollees experienced a coverage gap for prescription medications. This phase in the Part D plan design will remain in effect through December 31, 2024.
If you reached the donut hole, you were responsible for up to 25% of your prescription costs — plus 25% of pharmacy dispensing fees, which typically adds $1 to $3 to the cost of a prescription fill. This phase of Plan D coverage could be very costly for many Part D enrollees.
How do you get out of the Medicare donut hole?
Filling medications would get you out of the donut hole, as Plan D phases were based on how much enrollees spent on covered medications — as well as how much others spent on their behalf, including through manufacturer discounts.
If those combined out-of-pocket costs hit a certain amount — $8,000 in 2024 — you would get out of the coverage gap and enter the catastrophic coverage phase. At that point, you wouldn’t have any more out-of-pocket costs for covered medications for the rest of the year.
Signing up late for Medicare Part D can cost you. Sign up for a Medicare prescription medication plan when you’re first eligible or you’re likely to face a Part D late-enrollment penalty.
Does Medicare cover vaccines? Medicare Part D covers most vaccines without any out-of-pocket costs.
Do your research when enrolling in Medicare Part D. You can use the Medicare Plan Finder to locate and compare your options for prescription medication coverage.
Is the donut hole going away in 2025?
Yes, the plan design for Medicare Part D prescription medication benefits will eliminate the donut hole beginning January 1, 2025. This change is a result of provisions in the Inflation Reduction Act of 2022 to reduce prescription medication costs for Part D enrollees and the Medicare program. In 2025, Part D insurance plans will be responsible for a larger share of medication costs, which is expected to result in higher premiums, fewer stand-alone Part D plans, and formularies potentially dropping medications.
What will happen when the Medicare Part D donut hole disappears?
When the donut hole sunsets, the Medicare Part D plan design will collapse to three phases:
Deductible phase: During this phase, enrollees pay all of their prescription medication costs until they meet the Part D deductible, which is $590 in 2025. (Some plans have a lower deductible or no deductible at all.)
Initial coverage phase: Enrollees pay copays and coinsurance for all covered prescription medications until reaching the out-of-pocket maximum, which is $2,000 in 2025 and will be adjusted annually in the future based on inflation. The function of the donut hole will be replaced in this phase with the Manufacturer Discount Program, which makes manufacturer price reductions available to enrollees to make medications more affordable. Going forward, only what enrollees pay throughout the year for covered medication will count toward the out-of-pocket limit. Manufacturer discounts on covered medications will no longer be calculated into your out-of-pocket spending.
Catastrophic coverage phase: Enrollees have no cost-sharing for covered Part D medications.
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How can you avoid the Medicare Part D donut hole?
If you are reading this after January 1, 2025, avoiding the Medicare Part D donut hole is assured, because it’s been eliminated and replaced with a new $2,000 out-of-pocket spending cap.
But through December 31, 2024, you will enter the Medicare Part D donut hole if your out-of-pocket spending and other payments on your behalf reach $5,030. If that amount hits $8,000, you will progress to the catastrophic coverage phase.
Is there any insurance that covers the donut hole?
While Medigap supplement insurance can help you cover Medicare Part A and Part B out-of-pocket costs, there isn’t insurance that helps pay for Part D expenses. But there are ways to reduce your prescription medication expenses
A new Medicare Prescription Payment Plan starting in 2025 can help you manage your out-of-pocket costs for medications by billing you monthly capped amounts in lieu of paying upfront at the pharmacy.
The bottom line
The Medicare Part D coverage gap, often called the donut hole, will be eliminated at the end of 2024. Starting in 2025, Part D plans will have a $2,000 out-of-pocket limit, which is expected to reduce prescription medication costs for millions of people. Unlike in the past, manufacturer discounts will no longer count toward your Part D out-of-pocket spending.
Part D plans will now have three phases: deductible, initial coverage, and catastrophic coverage. In 2025, if you spend $2,000 out of pocket and enter the catastrophic phase, your Part D plan will pay 100% of the costs of your covered medications for the rest of the year.
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References
Centers for Medicare & Medicaid Services. (2024). CMS releases 2025 Medicare Part D bid information and announces premium stabilization demonstration.
Centers for Medicare & Medicaid Services. (2024). Final CY 2025 Part D redesign program instructions fact sheet.
Centers for Medicare & Medicaid Services. (2024). Inflation Reduction Act and Medicare.
Centers for Medicare & Medicaid Services. (2024). Medicare Prescription Payment Plan.
Cubanski, J., et al. (2023). Changes to Medicare Part D in 2024 and 2025 under the Inflation Reduction Act and how enrollees will benefit. KFF.
Cubanski, J. (2024). A current snapshot of the Medicare Part D prescription drug benefit. KFF.
Cubanski, J. (2024). Medicare Part D premiums are increasing for many but not all stand-alone plans in 2025, reflecting effects of new premium stabilization demonstration. KFF.
Duran, V. S., et al. (2023). Medicare Part D manufacturer discount program final guidance [letter to pharmaceutical manufacturers; all Part D plan sponsors]. Centers for Medicare & Medicaid Services.
Medicare.gov. (n.d.). Costs in the coverage gap.
Medicare Interactive. (n.d.). The Part D donut hole.
Sayed, B. A., et al. (2024). Medicare Part D enrollee out-of-pocket spending: Recent trends and projected impacts of the Inflation Reduction Act. U.S. Department of Health and Human Services.
