The Medicare Part D donut hole or coverage gap is the phase of Part D coverage after the end of your initial coverage period. After falling into the donut hole, the amount you pay for your prescriptions increases. If you’ve noticed that you are suddenly paying more for your drugs, you may be in the donut hole.
How does the donut hole work?
You enter the donut hole when your total drug costs—including what you and your plan have paid for your drugs—reach a certain limit. For most plans in 2018, this amount is $3,750. You generally pay more for your drugs during the coverage gap. However, as a result of health reform, there are federally funded discounts that help you pay for your drugs during the donut hole. In 2018, there is a 65% discount for most brand-name drugs, paid for by the manufacturer and the federal government. This means you pay the remaining 35% of the cost for brand-name drugs. Similarly, the government provides a 56% discount for generic drugs. This means you pay the remaining 44% of the cost for generics. The coverage gap is slowly closing, and will close completely by 2019.* At that point, everyone will pay, on average, 25% of the cost of their drugs (after meeting the deductible).
How do I get out of the donut hole?
In all Part D plans, after you have paid $5,000 in 2018 in out-of-pocket costs for covered drugs (this amount is just the amount you have paid, not the total drug costs that you and your plan have paid), you leave the donut hole and reach catastrophic coverage. During this period, you pay significantly lower copays or coinsurance for your covered drugs for the remainder of the year. The out-of-pocket costs that help you reach catastrophic coverage include:
- Your deductible
- What you paid during the initial coverage period
- Almost the full cost of brand-name drugs (including the manufacturer’s discount) purchased during the coverage gap
- Amounts paid by others, including family members, most charities, and other persons on your behalf
- Amounts paid by State Pharmaceutical Assistance Programs (SPAPs), AIDS Drug Assistance Programs, and the Indian Health Service
Costs that do not help you reach catastrophic coverage include monthly premiums, the cost of non-covered drugs, the cost of covered drugs from pharmacies outside your plan’s network, and the 56% generic discount. During catastrophic coverage, you will pay 5% of the cost for each of your drugs, or $3.35 for generics and $8.35 for brand-name drugs (whichever is greater).
Your Part D plan should keep track of how much money you have spent out of pocket for covered drugs and your progression through coverage periods—and this information should appear in your monthly statements.
Note: If you have Extra Help, you do not have a coverage gap. You will pay different drug costs during the year. Your drug costs may also be different if you are enrolled in an SPAP.
*For brand-name prescription drugs only. The donut hole closes in 2020 for generic drugs.