No, the infamous donut hole — when Medicare beneficiaries with Part D prescription drug coverage reached a certain level and then had to dig out by paying 100 percent of their drug costs out of pocket until they reached a certain threshold — has closed.
No donut hole, but now a coverage gap. Part D plans, federally regulated but sold by private insurers, may require you to pay a larger share of the cost for covered drugs after your drug costs reach a certain limit. The donut hole, some spell it “doughnut,” was a part of Medicare’s prescription drug benefit from its beginning in 2006, three years after Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act.
Before Part D was introduced, Medicare beneficiaries typically had to pay all costs for their prescriptions not included in Medicare Part B unless they had coverage from another source, such as retiree insurance or a Medigap plan. But some people had significant out-of-pocket costs even after they bought Part D coverage.
In 2007, the first full year of the Part D program, you hit the donut hole after you and your insurance company paid $2,400 in drug costs. You then had to pay 100 percent of the cost of covered drugs until you spent a total of $3,850 out of your pocket for the year.
Catastrophic coverage phase still exists. After spending $3,850 of your own money in 2007, you reached the catastrophic coverage level and then paid a small portion of your prescription costs.
A Kaiser Family Foundation study found that 32 percent of Part D enrollees reached the donut hole in 2007. Those who didn't get coverage from the Extra Help financial assistance program paid an average of $1,701 in out-of-pocket drug costs for the year.
The average out-of-pocket costs continued to rise, reaching $1,858 in 2010 until the donut hole started to close the following year.
When did the donut hole close?
The donut hole finally closed for good in 2020, having been phased out in 2019 for brand-name drugs and then in 2020 for generic drugs.
The Affordable Care Act enacted in March 2010 gradually reduced the share of costs people had to pay in the donut hole starting in 2011. Discounts from drug manufacturers and government payments helped to cover more costs over several years.
However, after you and your Medicare Part D prescription drug plan have spent a certain amount for your medications each year, you still must pay up to 25 percent of the cost of covered drugs. That's called the coverage gap.