Part D Donut Hole Explained

One of the worst parts about how Medicare works today, is the Coverage Gap stage of Prescription Drug plans. Also known as the “Donut Hole”, the coverage stage results in higher drug costs once you meet a certain level of out-of-pocket cost.

Lets walk through how the Part D Donut Hole works, so you can be prepared.

Medicare Donut Hole Explained

There are 4 total coverage levels in every Part D prescription drug plan. Of those 4, the Donut Hole is the 3rd level. Most people will spend all of their time in these first 2 stages, especially if they are just taking generic medications.

The first 2 coverage levels that you experience are:

Deductible – You will pay full price for your prescriptions until you reach your plan’s deductible. For 2024, the maximum deductible is capped at $545. This is a yearly deductible and, depending on your plan, may not include generic medications.
Initial Coverage Level – After you meet your deductible, your drug plan will split the costs with you. This is when you have a co-pay for your prescriptions. You stay in this level until your total drug costs reach $5,030 for the year.

Warning: You reach the Donut Hole based on your TOTAL drug costs
This includes the amount the insurance company is paying that you don’t see.

When You Enter the Donut Hole

You enter the Donut Hole, officially named the Coverage Gap, once you reach $5,030 in total drug costs for the year.

Expenses that count towards you entering the Donut Hole:

Your deductible
Your co-pays and co-insurance
The amount the insurance company was paying beyond your co-pays

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Costs in the Donut Hole

During the Coverage Gap, you’ll have to pay 25% of the cost of your medications. For your cheaper generic drugs, this won’t be an issue. For your expensive brand named drugs, this can certainly add up. Fortunately, the Donut Hole is not forever! Either you the calendar year will run out and you’ll reset back to the deductible or you’ll enter the Catastrophic Coverage level.

The Donut Hole doesn’t last forever
You will either exit the Donut Hole on January 1st when your plan resets or once you’ve reached the $8,000 limit.

When You Leave the Donut Hole

You leave the Donut Hole once your personal out-of-pocket expenses reach $8,000. You then enter what is called the Catastrophic Coverage level where you will no longer have any cost-sharing for the rest of the calendar year.

Expenses that count towards you leaving the Donut Hole:

Your deductible
Your co-pays and co-insurance during the Initial Coverage Level

Expenses that do not count towards you leaving the Donut Hole:

Your monthly premiums
Non-covered drugs
Covered drugs received out-of-network

Changes to the Coverage Gap

The Donut Hole was actually much worse in the past. It has been gradually shrinking since 2019. Back then it was you had to pay 100% of the cost during the Coverage Gap (yikes!).

Now that the Donut Hole is fixed at 25% it is effectively closed. Even with it being “closed”, drug costs are still astronomical for seniors. Because of that, there is pending legislation to reduce drug costs even further by adding in a maximum limit for drug spend in a year.

FAQs

When does the Donut Hole start?

The Medicare Donut Hole begins once you reach $4,660 in total drug spend for the year. This includes your co-pays and what the insurance company is paying.

Is the Medicare Donut Hole going away?

The Medicare Donut Hole is actually technically “closed”. Even though it may not feel that way, the costs in the Donut Hole used to be much higher than they are now.

Summary

The Part D Donut Hole is a scary part of Medicare for many seniors. Drug costs are already extremely high and the idea of having to pay even more just seems like a slap in the face. We get it. If you fear you may fall into this situation, check out our page on the Low Income Subsidy. Qualifying for this program would remove the Donut Hole for you all together.

Sylvia Gordon, aka Medicare Mama^®, is an expert on all things Medicare and Social Security. She is the 2nd Generation here at The Medicare Family and has served on the advisory boards of major insurance companies like UnitedHealthcare^®, Cigna, and Anthem. In her free time, she can be found taking care of her animals (dogs, goats, peacocks, chickens), and reading a good book. Learn More.

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