Medicare ‘Donut Hole’ and Part D: What to Know

Medicare can help ease the financial burden that comes with prescription medications, but it’s not without its limits.

For example, most Medicare Part D prescription drug plans have a coverage gap. This gap — often called the “donut hole” — occurs when a patient hits the coverage limit of their prescription drug plan.^[1] Once you reach this limit within a calendar year, you’re in the donut hole. You’ll then have to pay out of pocket for prescription medications.

Those out-of-pocket payments will only last until you reach a yearly limit, though. Your plan will help you pay for your covered prescription drugs again once the coverage gap concludes.

Here’s what you need to know about the donut hole and your Medicare Part D plan.

How the Medicare donut hole functions

The insurance donut hole is a temporary coverage gap that exists within many Medicare drug plans. In 2024, you’ll fall into this gap when you or your Medicare plan spend $5,030 on covered medications.^[2]

Purchasing brand-name or generic medications will determine how much you’ll pay out of pocket when you’re in the donut hole. For example, you may have to pay up to 25% of brand-name drug costs, plus a medication dispensing fee of up to another 25%. Additionally, you and your drug manufacturer’s financial contribution will be applied toward your out-of-pocket expenses. This will help you out of the donut hole.

You’ll pay 25% of the cost for generic drugs when you’re in the donut hole. Medicare pays for the rest. Your payments will go toward closing your Medicare coverage gap, though.

What you’re responsible for paying in the donut hole

Out-of-pocket expenses are the biggest downside to the prescription drug donut hole. You’ll be financially responsible for at least a portion of your covered medications until you’ve spent enough to reach the other side of the coverage gap — currently $8,000 in out-of-pocket costs. Once you reach $8,000, you’re officially in the catastrophic payment stage. This forces your plan to pay for most of your covered prescription drugs once again.

Your deductible, any payments made during the initial coverage period, and most of the brand-name drug costs you incurred during the coverage gap all bring you closer to the catastrophic payment stage. But your monthly insurance premiums, your plan’s drug payments, and out-of-network covered drugs won’t help you reach catastrophic coverage.

Here’s a brief look at the four parts/stages of Part D coverage:

• 

  Deductible

  You pay the full negotiated price for your covered prescription medication until you’ve met your Part D deductible. Your plan will begin to assist at that point. Your deductible can’t exceed $545 in 2024.

• 

  Initial coverage period

  Your plan helps pay for your covered medications until you’ve reached $5,030 in total drug costs for the year.^[3]

• 

  Coverage gap, a.k.a. the donut hole

  You’re responsible for 25% of your prescription drug costs until you reach the catastrophic coverage stage.

• 

  Catastrophic coverage

  After reaching $8,000 in out-of-pocket costs for your covered medications, you’re relieved of your cost-sharing obligation for covered drugs for the rest of the year.

Medicare Part D and donut hole coverage

When you enroll in Medicare, it’s in your best interest to understand the donut hole rule so you’re not caught off guard about potential out-of-pocket costs. Fortunately, resources are available that can show you when you’ll likely fall into, and get out of, the donut hole based on your medications.^[4]

The important thing to remember is that the money you pay toward covered drugs also goes toward bridging the coverage gap, so it’s important to understand what drugs your Medicare Part D plan covers and which ones it doesn’t.

Are there any insurance plans that cover the donut hole?

Unfortunately, no insurance plan covers the donut hole. The best-case scenario is to explore savings plans that help lower your prescription medications until you get out of the coverage gap.

For example, you can often use Medicare Advantage plans to cover a majority of your Part A and Part B benefits rather than traditional Medicare, but they can also help pay for your medications during the coverage gap. Be sure to review your Medicare Advantage plan’s details before enrolling to understand how the plan will handle your drug coverage.

Meanwhile, despite the name, Medigap plans, which help pay for out-of-pocket costs in Original Medicare, sold after 2005 don’t cover prescription drugs. But alternatives such as Medicare Extra Help and the Senior Savings Model could help bring your costs down until you’re out of the donut hole.^[5]

How to reduce costs during the donut hole and beyond

Paying out of pocket for prescription medication can be daunting, especially if you’re on a tight budget. While the coverage gap doesn’t last forever, getting to the other side can be very expensive.

Fortunately, options exist that can help decrease your burden when you reach the coverage gap. Consider the following:

• State Pharmaceutical Assistance Program (SPAP): If your state has a SPAP, it could help you pay for your covered medications. The program could also contribute a certain amount toward your Part D premium.

• Patient assistance programs: Brand-name medication companies often offer discounts and sometimes even no-cost drugs for qualified applicants. Your income and how much you spend on prescription medications will determine your eligibility for such programs.

• Pharmaceutical assistance programs: Some pharmaceutical companies provide programs to help people with Medicare Part D plans pay for their prescriptions.

• Generic or lower-cost medications: If you’re taking brand-name drugs, you could save by switching to generic drugs until you’re out of the donut hole. Check with your doctor to make sure the generic brand would work as well as your brand-name medication before switching.

• Apply for Extra Help: This Medicare program helps people with limited income and resources pay their Medicare Part D coverage premiums, deductibles, and other costs. Extra Help enrollees also avoid the coverage gap.

Medicare donut hole coverage FAQs