Most Medicare prescription drug plans have a coverage gap which is referred to as the “donut hole”, this gap occurs when an enrollee reaches a certain limit on what the drug plan will cover.

Once a Medicare enrollee has spent $4,430 on covered drugs in 2022, they enter the coverage gap, this amount may change each year.¹

The donut hole was created as a cost-saving mechanism to incentivize enrollees to use generic drugs.

Within the coverage gap they’ll pay no more than 25% of the cost for their respective plan's covered brand-name prescription drugs. Beneficiaries may pay discounted rates during this period, if they purchase prescriptions at a pharmacy or order them through the mail. The discount is deducted from the price that their plan has set with the pharmacy for that specific drug.¹ 

Nearly the full price of a drug will count as out-of-pocket costs to help an enrollee get out of the coverage gap. What they pay and what the manufacturer pays (95% of the cost of the drug) will count toward their out-out-pocket spending. What the drug plan pays toward the drug cost (5% of the cost) and the majority of the dispensing fee (75% of the fee) aren't counted toward out-of-pocket spending. Medicare will pay 75% of the price for generic drugs during the coverage gap. An enrollee will pay the remaining 25% of the price. For generic drugs, only the amount a beneficiary pays will count toward getting out the coverage gap.¹ 

In all Part D plans, a beneficiary leaves the donut hole and enters catastrophic coverage after their out-of-pocket costs for covered drugs reaches $7,050. During catastrophic coverage, they pay 5% of the cost for each drug, or $3.95 for generics and $9.85 for brand-name drugs (whichever is greater).² The out-of-pocket costs that help an enrollee reach catastrophic coverage include:

• Their deductible

• Amounts paid during the initial coverage period

• 95% of the cost of brand-name drugs purchased during the coverage gap

• Amounts paid by others, including family members, most charities, and other persons on an enrollee’s behalf

Amounts paid by State Pharmaceutical Assistance Programs, AIDS Drug Assistance Programs, and the Indian Health Service²

The number of Part D enrollees, without low income subsidies, who reached the coverage gap increased from 3.8 million in 2007 to 5.2 million in 2016.³

Costs that do not help an enrollee leave the donut hole and enter catastrophic coverage include: monthly premiums, what a plan pays toward drug costs, the cost of non-covered drugs, the cost of covered drugs from pharmacies outside a plan’s network, and the 75% generic discount.²

1. https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage/costs-in-the-coverage-gap. 

2. The Part D donut hole. Medicare Interactive. https://www.medicareinteractive.org/get-answers/medicare-prescription-drug-coverage-part-d/medicare-part-d-costs/the-part-d-donut-hole.

3. Cubanski J, Neuman T, Damico A. Closing The Medicare Part D Coverage Gap: Trends, Recent Changes, And What’s Ahead. Kaiser Family Foundation; 2018. https://www.kff.org/medicare/issue-brief/closing-the-medicare-part-d-coverage-gap-trends-recent-changes-and-whats-ahead/.  

4. Enabnit, A. Medical Writer. 2019. The 4 Phases of Part D. Coverage. [Figure]. Retrieved from https://eligibility.com/medicare/part-d/part-d-donut-hole.