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Does Medicare Part D still have a donut hole?

No, the donut hole in the middle of Part D prescription coverage, where you had to pay 100 percent of the drug costs yourself until your out-of-pocket spending reached a certain level, has been closed.

But Part D plans, federally regulated but sold by private insurers, still have a coverage gap where you may pay a larger share of the cost for covered drugs. The donut (some spell it “doughnut”) hole, 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.

Since Americans began receiving Medicare coverage 40 years before, older adults and disabled people had to pay all the costs of their prescriptions not included in Medicare Part B unless they had coverage from some sort of retiree or Medigap plan. In June 2003, the Kaiser Family Foundation estimated that Medicare beneficiaries were paying an average of $999 a year out of pocket for their prescriptions — almost $1,600 in May 2022 dollars — and that was expected to increase to almost $1,300 in 2006, which is about $2,050, adjusted for inflation.

When did the donut hole close?

Starting in 2010, the Affordable Care Act gradually reduced the share of costs people had to pay in the donut hole. Discounts from drug manufacturers and government payments helped to cover more costs over several years.

The donut hole finally closed in 2020. It was eliminated in 2019, earlier than initially expected, for brand-name drugs and ended for generic drugs in 2020.

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 is called the coverage gap.

When do I reach the Part D coverage gap?

In 2022, you’ll hit the coverage gap when you and your insurance company have paid $4,430 in total for your medications during a year. That number includes any deductible you must pay before a plan will cover your prescriptions. In 2022, Part D plans can have a deductible of up to $480, although many plans don’t have any deductible.

You’ll stay in the gap until you’ve spent $7,050 out of your own pocket during the year. Then you’ll enter the catastrophic coverage phase. Both the threshold and the ceiling in the coverage gap can change each year.

Part D plans have up to four coverage phases throughout a year, each with different out-of-pocket costs: deductible, initial coverage phase, coverage gap and catastrophic coverage phase. You may not reach all the coverage phases during a year, depending on the cost of your medications.

And you start over again when a new plan year begins each Jan. 1.

The phases of Part D prescription coverage

In addition to your premium, you likely will pay a fixed dollar amount, called a copayment, for each of your prescriptions after you meet any deductible. Or you may pay coinsurance, a percentage of the costs your plan charges for a medication. What you pay out of pocket can vary depending on how much you’ve already paid during a year.

Annual deductible Initial coverage Coverage gap Catastrophic coverage
You pay for your medicines until reaching your plan’s deductible. You pay your plan’s copays or coinsurance for brand-name and generic drugs. You pay no more than 25 percent of the cost of brand-name and generic drugs. You pay a small copay amount or small insurance percentage.
If your plan has no deductible, initial coverage starts with your first prescription. You stay in this stage until your total drug costs reach $4,430 in 2022. You stay in this stage until your out-of-pocket costs reach $7,050 in 2022 You stay in this stage for the rest of the year.

Source: Medicare

How do I leave the Part D coverage gap?

When your out-of-pocket spending hits $7,050 in 2022 — the amount you personally have paid, not the insurer’s share — you move from the coverage gap to the catastrophic coverage phase, where you pay just a small portion of your drug costs for the rest of the year.

Your spending likely won’t equal the $2,620 difference between the $4,430 you and your insurance company had already paid when you entered the coverage gap and the $7,050 out-of-pocket spending you need to get out because both numbers represent different calculations. The expenses that count to get you out of the coverage gap include the following:

  • Your deductible
  • Copayments or coinsurance you paid for your medications in the initial coverage phase
  • Money you spent in the coverage gap

A manufacturer’s discount on brand-name drugs in the coverage gap also counts in the calculation. Drug manufacturers pay 70 percent of the insurer’s negotiated cost of brand-name drugs to discount what you pay in the coverage gap.

For generic drugs, Medicare pays 75 percent of the cost while you’re in the coverage gap, and you pay the remaining 25 percent. Only the 25 percent you pay for generics counts toward getting you out of the coverage gap.

Your monthly Part D premiums, any portion of the costs your drug plan pays, and what you pay for drugs that aren’t covered don’t count to help you exit the coverage gap. But after you reach the catastrophic phase, you pay up to 5 percent of the price for each of your drugs or $3.95 for generics and $9.85 for brand-name drugs, whichever is greater.

How do I know which Part D coverage phase I’m in?

Your Part D plan keeps track of how much you’ve spent for covered drugs and where you are in the coverage phases. The plan must send you a monthly statement, called an explanation of benefits, every month that you fill a prescription. You may also be able to access this statement online.

When choosing a Part D plan, the Medicare Plan Finder can show you when you’re likely to enter and leave the coverage gap based on the costs each plan in your area charges for your medications. It also estimates your out-of-pocket costs by month and shows how much you would pay in each of the coverage phases for each plan.

Keep in mind

If you qualify for the Part D Extra Help financial assistance program, you won’t have a coverage gap. People with income and assets below a certain level can qualify for Extra Help, which helps pay your Part D premiums, deductibles, copayments and coinsurance.

If you qualify for full Extra Help, you’ll pay no more than $3.95 for each covered generic drug and $9.85 for each brand-name drug until you reach the catastrophic coverage level, when the copayments drop to zero.

Will Medicare Part D Pay for All of My Prescription Drugs?

Updated June 16, 2022

     

        


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