The Medicare Part D Coverage Gap explained

The Coverage Gap stage (also known as the “Donut Hole”) is a temporary limit on what the drug plan will cover for drugs 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 $545 in 2024).

After you meet any applicable deductible on your plan, 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, 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.

For brand name drugs covered during your Coverage Gap Stage, you can get discounts from the drug makers through the Coverage Gap Discount Program. Through the program, you pay no more than 25% of the plan price for brand name drugs. You may also have to pay some additional charges, such as dispensing or vaccine fees. The full plan fee (both the amount you pay and the discounted amount) count toward your total out-of-pocket-costs, which helps move you through the Coverage Gap Stage.

You also receive some coverage for generic drugs in the Coverage Gap. You pay no more than 25% of the cost for generic drugs and the plan pays the rest. For generic drugs, the amount paid by the plan (75%) does not count toward your out-of-pocket costs. Only the amount you pay counts and moves you through the coverage gap.

Many Humana plans also offer additional coverage for covered prescription drugs during the Coverage Gap Stage.

Is the Medicare Coverage Gap stage going away?

Due to changes in the Inflation Reduction Act (IRA), signed in 2022, starting in 2025, there will no longer be a Coverage Gap Stage on Medicare Part D plans.

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

Stage 1—Deductible Stage

Before your plan begins to pay, some Part D plans require you to pay an annual deductible, which is 100% of the cost of prescription drugs up to a certain amount. Plans differ in terms of deductibles, and certain Part D plans have none at all. The most a deductible can be in 2024 is $545. Your initial coverage begins once you reach your deductible.

Stage 2—Initial Coverage Stage

Once you pay any applicable deductible, you enter the Initial Coverage Stage. During the Initial Coverage Stage, the plan pays its share of the cost of your covered prescription drugs, and you pay your share (your copayment or coinsurance amount). Your share of the cost will vary depending on the drug and where you fill your prescription.

You enter the Part D Coverage Gap once the total amount you and your drug plan pay for prescription drugs during the year reaches the Initial Coverage Limit, which is $5,030 in 2024.

Stage 3—Medicare Part D Coverage Gap

A Coverage Gap, sometimes known as the Medicare "donut hole," exists in the majority of Medicare prescription plans. 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.

What counts towards moving out of 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 moving out of the Coverage Gap:

• Your drug plan premium
• Pharmacy dispensing fees
• What your plan pays

Stage 4—catastrophic coverage

Starting in 2024, members will pay $0 for covered Part D drugs during the Catastrophic Coverage stage.

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

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.³