What Does the Medicare Part D ‘Donut Hole’ Coverage Gap Mean?
Key takeaways:
Your Medicare prescription drug costs can change over the course of the year, depending on how much you’ve already spent.
If you have Medicare Part D, you will be in one of four phases: deductible phase; initial coverage phase; “donut hole,” or coverage gap phase; and catastrophic coverage phase.
In the “donut hole,” or coverage gap, you pay no more than 25% of your prescription costs plus 25% of the pharmacy dispensing fee, which typically adds $1 to $3 for each prescription fill.
You get out of the donut hole once your total out-of-pocket spending and other payments on your behalf for the year hit $8,000 in 2024.
Table of contents
What exactly is the Medicare Part D donut hole?
In discussions of Medicare, when people use the term “donut hole,” they’re referring to a coverage gap in the Part D prescription drug benefit. Historically, Part D enrollees paid their deductible plus out-of-pocket copayments up to a certain threshold. The next phase, the donut hole, required them to pay full price for covered drugs until their out-of-pocket costs reached a given total. At that point, enrollees entered the “catastrophic” phase of coverage, with low copayments that brought their drug costs back down.
But now, donut hole cost-sharing for enrollees is similar to what you pay out of pocket in the initial coverage phase. In both phases, enrollees pay 25% coinsurance for brand-name and generic drugs as well as 25% of the pharmacy dispensing fee, which typically amounts to an extra $1 to $3 for each prescription fill.
Medicare Part D phases
Medicare Part D phases and cost-sharing are as follows:
Deductible or initial phase: On and after January 1, you pay the full cost of your medications until you reach your deductible — if you have one. The standard Part D deductible cannot exceed $545 in 2024. Your plan pays nothing in this phase.
Initial coverage (post-deductible) phase: After meeting your deductible, you begin cost-sharing with your plan. Your plan pays 75%, and you pay 25% (or up to $1,257.50 if your plan has no deductible). Your plan pays up to $3,772.50 in this phase. For plans with a deductible, the initial coverage limit will be $5,030 in 2024, which includes the amounts that both you and your plan pay.
Donut hole (coverage gap) phase: You still pay 25% of your drug costs as well as 25% of the pharmacy dispensing fee, which should be another $1 to $3 out of pocket for each prescription fill. Your health plan will pay the other 75% for generic drugs. For brand-name medications, your insurance will pay 5%, and the other 70% will be covered by a manufacturer discount. You’ll have to be credited with paying $8,000 in 2024 — the amounts that you and other entities such as Extra Help have paid on your behalf, including the value of manufacturer discounts — before you are out of the donut hole.
Catastrophic (post-donut hole) phase: Beginning in 2024, you don’t pay anything out of pocket for medications when you reach the catastrophic phase.
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When do you enter the Medicare Part D coverage gap?
You reach the donut hole when you’ve maxed out your initial coverage. You remain there in 2024 until your out-of-pocket costs and credited spending on your behalf reach $8,000.
Costs in the coverage gap
Your costs in the coverage gap remain up to 25% of the price of most prescription medications, but what your health plan pays for brand-name drugs changes from the initial coverage phase.
In 2024, you pay no more than 25% of your prescription costs in the coverage gap. Depending on your medications, this can be costly. As mentioned, 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. Unlike in the initial coverage phase, your health plan’s payments for your medications in the donut hole don’t count toward reaching your $8,000.
Brand-name drugs
You pay 25% coinsurance if you buy your prescriptions at a pharmacy or through a mail delivery pharmacy service. Some plans offer even lower costs via a discount on the price your plan has set with the pharmacy for specific drugs.
Almost the full price of the drug will count toward your out-of-pocket costs in this way:
The manufacturer pays 70% to discount the price for you.
Your plan pays 5% of the cost.
You pay 25% of the cost of the drug.
There’s also a dispensing fee. Your plan pays 75% of the fee, and you pay 25% of the fee, which is typically $1 to $3 for each medication filled.
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What the drug plan pays toward the prescription isn’t counted toward your out-of-pocket spending.
Generic drugs
The coverage for generic drugs works differently from the discount for brand-name medications. Your Part D plan will pay 75% of the price for generic drugs, and you'll pay the remaining 25%. Only the amount you pay for generics will count toward getting you out of the coverage gap.
How do you get out of the Medicare Part D donut hole?
You get out of the donut hole when your credited out-of-pocket costs reach $8,000 in 2024. This amount includes what you and other entities such as Extra Help have paid on your behalf, including the value of manufacturer discounts.
Expenses that count toward the coverage gap
These expenses count toward the coverage gap:
Your yearly deductible, coinsurance, and copayments
The discount you get on brand-name drugs in the coverage gap
The amount you pay in the coverage gap
Expenses that don’t count toward the coverage gap
These expenses do not count toward the coverage gap:
Your drug plan premium
Pharmacy dispensing fee
The amount you pay for drugs that aren’t covered
Is there any insurance that can cover you while you’re in the donut hole?
No. There is no insurance that can help you cover costs in the donut hole. It’s important to note that some Medigap or Medicare supplement plans cover deductibles, coinsurance, and copayments for Medicare Part A and Part B only.
What you can do
One program — Medicare’s Part D Low-Income Subsidy (known as Extra Help) — provides financial support to people who have trouble paying for their Part D premiums, deductibles, or copayments. People who receive Extra Help are not subject to the donut hole.
You may qualify for Extra Help in 2023 if you earn up to $21,870 per year ($29,580 for a married couple) and have financial assets up to $16,600 ($33,240 for a married couple). To find out if you qualify, you can fill out an online form at the Social Security website. (Figures for 2024 were not available at the date of this publication, but they should be updated later.)
If you get Extra Help, you can sign up for Part D without any late enrollment penalty, no matter when your initial or special enrollment period ends. Extra Help is financial assistance for Part D monthly premiums, annual deductibles, and copayments for your medications.
You can apply for Extra Help online or by calling the Social Security Administration at 1-800-772-1213.
You can sign up for Extra Help, as mentioned, and you can also look for other ways to lower your costs. Using discounts, such as those offered by GoodRx, may bring prices down to less than your Medicare Part D drug copay. In addition, some drug manufacturers have programs that provide medications at low or no cost to those who can’t afford them.
When Medicare open enrollment season rolls around, you have the option of switching to a different prescription drug plan. Spend some time evaluating plans, then choose one with a formulary that charges lower copayments for your specific medications. Also check out your plan’s preferred pharmacies, which typically have lower negotiated drug costs.
The bottom line
Your Medicare Part D prescription drug costs can change during the year depending on how much you spend on medications. After you meet a deductible, if you have one, and spend through the initial coverage phase — when you share costs with your insurance plan — you enter the “donut hole,” or coverage gap. In 2024, you hit the coverage gap when you and your plan have spent $5,030 on your prescription medications.
In the “donut hole,” or coverage gap, you pay no more than 25% of your prescription costs plus 25% of the pharmacy dispensing fee, which is usually $1 to $3. The other 75% is paid by your health plan for generic drugs. For brand-name medications, 5% is paid by your Part D plan, and 70% is covered by a manufacturer discount.
You get out of the donut hole once your total out-of-pocket spending and other payments on your behalf for the year hit $8,000 in 2024. Your Part D plan’s payments while you’re in the donut hole do not count toward your out-of-pocket costs. Beginning in 2024, if you have Extra Help, you receive subsidies that underwrite the cost of your medications, and you won’t enter the coverage gap.
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References
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Cubanski, J., et al. (2021). Millions of Medicare Part D enrollees have had out-of-pocket drug spending above the catastrophic threshold over time. Kaiser Family Foundation.
Healthcare.gov. (n.d.). Donut hole (Medicare prescription drug).
Kaiser Family Foundation. (2023). An overview of the Medicare Part D prescription drug benefit.
Kirzinger, A., et al. (2021). KFF health tracking poll - May 2021: Prescription drug prices top public’s health care priorities. Kaiser Family Foundation.
Medicare.gov. (n.d.). Help with drug costs.
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The White House. (2021). Fact sheet: President Biden calls on Congress to lower prescription drug prices.
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