The Medicare Part D prescription drug Coverage Gap explained

What is the Part D “donut hole”?

The “donut hole” is a coverage gap in most Medicare Part D prescription drug plans. Many prescription drug plans are organized in stages of coverage. For instance, if your Part D plan requires that you meet a deductible, you must pay 100% of the cost of your medication until you meet your deductible amount (a maximum of $480 in 2022).

After you meet your deductible, your Initial Coverage stage starts. During this stage, your Part D plan will help to cover the cost of your prescription drugs. However, once you and your plan pay a certain amount ($4,430 in 2022), you will enter the Part D coverage gap, or “donut hole”.

How the “donut hole” coverage gap works

Many Part D plans have a built-in gap in coverage that temporarily limits the amount your insurance will pay for prescription drugs. This coverage gap opens after initial plan coverage limits have been reached and before Catastrophic Coverage kicks in. When Medicare Part D was first implemented, plan members who fell in this gap had to pay the full cost of their covered drugs until their total costs qualified them for Catastrophic Coverage. The phrase “Medicare donut hole” was commonly used to describe this gap.1

Is the Medicare “donut hole” going away?

Many people wonder if (and when) the “donut hole” will be eliminated. The good news? When the Affordable Care Act passed in 2010, it included provisions for gradually shrinking the coverage gap bit by bit each year. Before 2019, members once paid 100% of their costs in the gap. Now, their share of costs in the coverage gap is limited to 25% for both brand-name and generic drugs.2 The Coverage Gap is essentially closed, but still remains relevant when it comes to prescription drug coverage.3

The 4 coverage Medicare Part D coverage stages

Understanding the coverage stages of your prescription drug coverage may help you manage your costs over the course of your plan year.

Stage 1—Deductible Stage

Some Part D plans require you to pay an annual deductible, or 100% of the cost of prescription drugs, up to a certain limit before your plan starts to pay. The deductibles vary between plans and some Part D plans have no deductible. In 2022, the deductible can’t be more than $480. Once you hit your deductible, your initial coverage kicks in.

Stage 2—Initial Coverage Stage

During this stage, your copayments and coinsurance come into play. You pay just your share of prescription costs and your Part D plan pays the rest for covered drugs. For example, if your plan has a 25% coinsurance for a $200 prescription, you would pay $50 and your plan would cover the $150 balance.

If the combined amount you and your drug plan pay for prescription drugs reaches a certain level during the year—that limit is $4,430 in 2022—you enter the Part D coverage gap.

Stage 3—Medicare Part D Coverage Gap

Most Medicare drug plans have a Coverage Gap (also called the Medicare “donut hole”). This means there’s a temporary limit on what the drug plan will cover for drugs. Not everyone will enter the Coverage Gap, and it doesn’t apply to members who get Extra Help to pay for their Part D costs.

Once in the gap, you’ll pay no more than 25% of the cost for brand-name and generic prescription drugs covered by your Part D plan, although the full cost of those drugs will be used to move you closer to the Catastrophic Coverage stage.

For 2022, once you’ve spent $7,050 out of pocket, you’re out of the Coverage Gap and moved into stage 4—Catastrophic Coverage.

What counts toward the Coverage Gap:

  • Your yearly deductible, coinsurance and copayments
  • The discount you get on brand-name drugs in the Coverage Gap
  • What you pay in the Coverage Gap

What doesn’t count toward the Coverage Gap:

  • Your drug plan premium
  • Pharmacy dispensing fees
  • What you pay for drugs that aren’t covered by your particular plan

Stage 4—Catastrophic Coverage Stage

In this last phase of Part D plan coverage, you’ll only pay a small coinsurance amount or copayment for covered drugs for the rest of the year.

When your new plan year is beginning, you start over at stage 1 (when a deductible is applicable to your plan).

How to avoid the donut hole in your prescription drug coverage

Even though the “donut hole” has been closing, there are still steps you can take to avoid extra costs associated with the coverage gap. You could compare prescription drug plans each year to make sure your plan offers the best coverage for your medications. You could also use generics over brand-name drugs whenever possible or double-check the prices of drugs online. Some Medicare Part D plan members may qualify for Extra Help, a low-income subsidy designed to help with the costs of prescription drugs.4

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Sources

  1. Louise Norris, “How do my Medicare prescription drug costs in 2022 Compare with 2021?,” last accessed June 8, 2022, https://www.medicareresources.org/faqs/how-do-my-medicare-prescription-drug-costs-in-2020-compare-with-2019/.
  2. Brandy Bauer, “How to Avoid the Medicare Part D Donut Hole,” National Council on Aging, last accessed June 8, 2022, https://www.ncoa.org/article/how-to-avoid-the-medicare-part-d-donut-hole.
  3. “How do my Medicare prescription drug costs in 2022 compare with 2021?”
  4. “Medicare Part D Donut Hole (Coverage Gap),” MedicareFAQ.com, last accessed June 8, 2022, https://www.medicarefaq.com/original-medicare/medicare-parts/medicare-part-d/medicare-donut-hole/.