Can I Avoid the Medicare Donut Hole? Here Are 5 Money-Saving Hacks
Key takeaways:
The Medicare “donut hole” describes a pause in prescription medication coverage during the coverage year. The donut hole is also known as “the coverage gap.” When this occurs, you have to pay for medications out of pocket until your insurance begins cost-sharing again.
In 2024, you enter the Medicare donut hole when you and your insurance plan hit $5,030 in total costs. When you are in the donut hole, you pay no more than 25% of your medication costs until you spend $8,000 for covered medications (including the amount paid by other entities, such as Extra Help, on your behalf).
Once your prescription costs total $8,000 for the year, you enter what is called the catastrophic phase, which will require no cost-sharing from consumers in 2024.
You may be able to lower prescription medication costs and avoid the donut hole with help from GoodRx and patient assistance programs.
When you think of a donut hole, you might imagine the smile-inducing, bite-sized treat. But there’s also the Medicare donut hole, which is much less sweet. The Medicare donut hole refers to a gap in Medicare Part D prescription medication coverage.
What is the Medicare donut hole?
The term “donut hole” — also known as “the coverage gap” — comes from a common analogy used to explain the four phases of Medicare Part D plans, which provide prescription medication benefits, and the out-of-pocket costs for each phase.
Below are the four phases of Part D and their associated costs for 2024:
Deductible: During this phase, you’re responsible for the full cost of your medications. In 2024, Part D deductibles can’t exceed $545. (Some plans don’t have deductibles.) At this point, you’re on the donut.
Initial coverage: Once you pay your deductible, you move to the initial coverage phase. At this point, you’re on the edge of the donut and cost-sharing begins. Your plan pays 75% of the cost of covered medications and you pay 25% until your total medication expenses reach a certain limit. In 2024, that limit is $5,030, which means the most you would pay is $1,257.50 with a plan with no deductible.
Coverage gap: When you’ve maxed out your initial coverage, you reach the donut hole. In 2024, you pay no more than 25% of your prescription costs in this phase. Depending on your medications, this can be costly. You can only get out of the donut hole once your total out-of-pocket spending for the year hits $8,000 in 2024. This includes the amount paid by other entities, such as Extra Help, on your behalf and any discounts you receive on brand-name medications.
Catastrophic coverage: When you get to the catastrophic coverage phase, you regain access to dough — meaning, your plan once again starts paying for your medications. Starting in 2024, reaching the catastrophic phase means you won’t have copayments or coinsurance for covered Part D medications for the rest of the year. The 5% coinsurance previously associated with catastrophic coverage has been eliminated. People who take costly medications — but don’t have a low-income subsidy for Part D — are expected to save thousands of dollars with this change.
Prescription Savings Are Just the Beginning
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Every year on January 1, the Part D plan cycle starts over. At that point, you’ll return to the deductible phase, or the initial phase if your plan doesn’t have a deductible.
Why does the donut hole exist?
Long story short, when the Medicare Part D program was introduced in 2006, the donut hole was included as a way to make enrollees more mindful about the prices of their medications. The goal was to incentivize people to shop around for cheaper medication that would cost both consumers and insurers less.
How do you close the coverage gap and get out of the donut hole?
There are several ways to avoid or minimize your coverage gap:
Lower the costs of your prescription medications by choosing a Part D plan with a formulary that includes your medications.
Shop around to see if you can find a pharmacy that offers your medications at a lower cost.
Look into ordering your medications by mail, which can be cheaper than getting them at a physical pharmacy.
Use discounts, such as those offered by GoodRx, which can bring prices down to less than what you would pay with your insurance.
See if you qualify for Extra Help, a federal subsidy program for Medicare recipients with low incomes. People who have Medicare Advantage plans are not eligible for Extra Help.
I can’t afford my medications. What can I do?
The best thing you can do to save money on your medications is to plan ahead. If you’ve been taking the same medications for a long time, try calculating how much you spend on them in a year. Based on which phase of your Part D plan you think you’ll end up in, here are some ways to save:
Stuck in the donut hole? If you reach the coverage gap and can’t afford your medications, look up discounts for those medications on GoodRx. There’s a good chance you can save a significant amount in the long run, especially if you know you won’t be able to meet the $8,000 out-of-pocket maximum.
Know you won’t be able to afford the donut hole? If your medications cost about the same or less with GoodRx coupons as they do with insurance coverage, it may make more sense for you to use coupons instead of risking entering the donut hole. Just know, you may pay more upfront, but you could avoid the donut hole later.
Feeling healthy? If you don’t foresee having a lot of medication expenses during the year, paying a lower amount for medications with GoodRx coupons may make more sense than trying to reach your deductible.
Just want to save money? Always shop around for the lowest prices by looking up your medications on the GoodRx website or app. Your medications may not always be covered or may cost too much under your plan’s formulary. So use GoodRx coupons strategically.
Looking for other ways to save? Look up your medications using this Medicare tool to see if there are patient assistance programs that you can use. Also, check to see if there is a State Pharmaceutical Assistance Program where you live that can help reduce the cost of your medications.
The bottom line
Medicare Part D is prescription medication coverage you can add to original Medicare or a Medicare Advantage plan that doesn’t already have coverage for prescription medications.
In 2024, you enter the Medicare Part D donut hole, or “the coverage gap,” when you and your insurance plan hit $5,030 in total costs. You have to spend $8,000 on covered medications during the year to get out of the coverage gap. You can consider using GoodRx, patient assistance programs, and other cost-saving options to avoid the donut hole.
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References
Cubanski, J., et al. (2023). Changes to Medicare Part D in 2024 and 2025 under the Inflation Reduction Act and how enrollees will benefit. Kaiser Family Foundation.
Medicare Interactive. (n.d.). Extra Help basics.
Medicare.gov. (n.d.). Costs in the coverage gap.
Medicare.gov. (n.d.). Help with drug costs.
Medicare.gov. (n.d.). Yearly deductible for drug plans.
National Council on Aging. (2023). Medicare Part D cost-sharing chart.
Saul, S. (2007). Strategies to avoid Medicare’s big hole. The New York Times.
