What is the Medicare ‘Donut Hole,’ or Part D Coverage Gap?
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Medicare Part D has a coverage gap, or "donut hole," when you might pay significantly more for covered drugs.
You enter the donut hole when you and your plan have paid a combined total of $4,660 in 2023.
In the donut hole, you pay up to 25% of the cost of your medications.
The donut hole ends when you’ve spent $7,400 out of pocket for the year.
Medicare Part D has a coverage gap, or "donut hole," when you might pay significantly more for covered drugs.
You enter the donut hole when you and your plan have paid a combined total of $4,660 in 2023.
In the donut hole, you pay up to 25% of the cost of your medications.
The donut hole ends when you’ve spent $7,400 out of pocket for the year.
If you have a Medicare Part D prescription drug plan, there’s a gap in coverage after you’ve spent a certain amount on covered drugs. In this Medicare "donut hole," you stop paying your plan’s usual copays or coinsurance. Instead, you pay up to 25% of the cost of your covered drugs, which could get pretty expensive.
Here’s what you should know about the Medicare Part D donut hole.
What is the Medicare 'donut hole'?
There are four phases of Medicare Part D coverage that correspond to how much you’ve spent out of pocket on covered prescription drugs for the year:
Deductible: You pay for your prescription drugs out of pocket until you meet your annual deductible.
Initial coverage: You pay your plan’s copays or coinsurance for covered drugs until you and your plan have spent a combined total of $4,660 in 2023.
Donut hole: You stop paying the copays and deductibles you paid before. Instead, you pay up to 25% of the cost of covered drugs until you’ve spent $7,400 in 2023.
Catastrophic coverage: You pay 5% of the cost of covered drugs or $4.15 for generic drugs or $10.35 for brand-name drugs in 2023, whichever is higher, until the end of the year.
The donut hole is the third of those four phases, and it’s the one that’s likely to be the most expensive for you because the 25% of the cost you pay in the donut hole is probably higher than the copays or coinsurance you paid before.
For example, if you take a drug that costs $100, you might owe a $10 copay during the initial coverage phase, but you’d owe $25 in the donut hole.
You might see these divisions of Medicare Part D coverage described as “phases” or “stages” in documents from Medicare or your insurance company.
How to avoid the Medicare donut hole
It’s not inevitable that you’ll end up in the donut hole. Here are a few ways you might avoid it:
Low spending. If you keep your prescription drug costs down, you might not spend enough to reach the donut hole. Choosing generic drugs whenever possible and using preferred and/or in-network pharmacies can help reduce your costs.
Gap coverage. Some plans offer “gap coverage” to reduce your out-of-pocket costs in the donut hole. However, gap coverage might apply only to certain drugs, and a plan with gap coverage might have higher monthly premiums.
Extra help. If you're part of a Medicare program called Extra Help, your drug costs will be different, and there's no coverage gap.
How do I get out of the Medicare donut hole?
You leave the donut hole and enter catastrophic coverage when your out-of-pocket costs for covered drugs hit $7,400 in 2023. In the catastrophic coverage phase, you owe 5% of the cost of your covered prescription drugs, with a minimum of $4.15 for generic drugs or $10.35 for brand-name drugs in 2023.
2023 is the last year for the 5% coinsurance during the catastrophic coverage phase. The Inflation Reduction Act eliminates that coinsurance starting in 2024.
Figuring out when you’ll hit that threshold can be a little complicated — what counts as “out-of-pocket spending” most likely isn’t equal to what you actually spend.
The good news: Your Medicare Part D statements should show you what phase you're in, a running total of your drug costs and what it will take to move into the next phase.
Here’s what costs do and don’t count toward the out-of-pocket totals that appear on those statements:
What counts toward your out-of-pocket total in the coverage gap:
Your annual deductible, coinsurance and copayments.
95% of the cost of covered drugs (even though you’re responsible for only up to 25% out of pocket), except for dispensing fees.
25% of the cost of pharmacy dispensing fees (you’re responsible for the same 25% out of pocket for these fees).
What doesn’t count toward your total:
Monthly premiums for your Medicare Part D plan.
The portion of the costs and pharmacy dispensing fees that your Part D insurance company pays.
Anything you pay for drugs that aren’t covered by your plan, including the cost of covered drugs from pharmacies that aren’t in your plan’s network.
Is the Medicare donut hole closed?
It depends on what you mean by “closed.” There’s still a coverage gap — for now — but it’s less costly than it used to be, and soon it will go away.
When Medicare Part D was created, the coverage gap was just like the deductible phase: You were responsible for 100% of drug costs until your out-of-pocket costs hit the catastrophic coverage threshold.
The Affordable Care Act, or ACA, reduced Medicare beneficiaries’ cost-sharing requirements in the coverage gap starting in 2011. The ACA’s full set of mandatory manufacturer discounts and government subsidies took effect in 2020, so now Medicare beneficiaries are responsible for 25% of the cost of covered drugs in the donut hole.
» How to compare Medicare drug plans
The coverage gap will soon go away. A $2,000 out-of-pocket spending cap for Medicare Part D takes effect in 2025. That $2,000 cap is much less than what you need to spend to enter the donut hole, so people with Medicare Part D won’t have to worry about the coverage gap starting in 2025.
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