Does Medicare Part D still have a donut hole?

When did the Part D coverage gap go away?

On Jan. 1, 2025, Medicare’s $2,000-a-year out-of-pocket limit for prescription medications took effect. It applies to stand-alone Medicare Part D policies and drug coverage in Medicare Advantage plans.

The $2,000 cap includes deductibles, copayments and coinsurance for covered drugs. It doesn’t apply to premiums or to drugs a plan doesn’t cover.

An estimated 3.2 million Americans are expected to save money on prescription medications this year because of an AARP-backed law that Congress passed in 2022, according to an August 2024 AARP report.

What used to happen when someone had high drug costs?

From 2021 to 2024, you hit the coverage gap when you and your insurance company paid thousands of dollars for your medications during a year. That number included any deductible you had to pay before a plan would cover your prescriptions. 

In 2024, you stayed in the gap until you spent $8,000 out of your own pocket for covered drugs during the year. Then you automatically entered the catastrophic coverage phase where you no longer had to pay out-of-pocket costs for covered drugs for the rest of the calendar year after you reached the catastrophic phase.

Catastrophic coverage used to work differently before 2024: Once an enrollee’s out-of-pocket costs reached a certain level, they had to pay 5 percent of their prescription drug costs with no limit. 

During a typical year, you might not have reached all the coverage phases, depending on the cost of your medications. And you had to start over again when a new plan year started each Jan. 1.

Keep in mind

If even a $2,000 cap could create financial hardship, you may qualify for one of two programs.

The Medicare Prescription Payment Plan gives both Part D and Medicare Advantage plan participants the option to spread their drug costs throughout the year instead of paying a big bill in one lump sum. It won't save money on drug costs, but it can help prevent big-bill sticker shock, and you can apply at any time.

The Part D Extra Help financial assistance program can help people with income and assets below a certain level pay for Part D premiums, deductibles, copayments and coinsurance. With full Extra Help, you’ll pay no more than $4.90 for each covered generic drug and $12.15 for each brand-name drug in 2025 until the total drug costs from what you, Extra Help and other financial assistance programs pay reach $2,000. Then you'll pay nothing more for your covered prescriptions until the next year.

This story, originally published June 16, 2022, was updated to reflect the complete closure of the donut hole and 2025 programs meant to help those who still might have difficulties paying big prescription bills.

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