What is the doughnut hole in prescription drug coverage

The Medicare Part D donut hole, also known as the coverage gap, is a stage in Part D prescription drug coverage that may temporarily limit what your Medicare prescription drug plan will cover. Not everyone will enter the coverage gap. During this stage of coverage, you may start paying more for covered prescription drugs than what you paid earlier in the year. The dollar amount when you enter the donut hole (coverage gap) stage may change each year. The coverage gap begins once you and your plan have spent $4,430 on covered medications in 2022, varying from year to year.

If your Medicare Part D health plan requires a deductible to be met, you must pay the entirety of the cost of your medication until your deductible has been met (a maximum of $480 in 2022). After your deductible has been met, your Initial Coverage stage begins. 

Changes in the dollar threshold for the Medicare Part D donut hole, as well as the cost-sharing amount you pay during this coverage stage, result from the Affordable Care Act (ACA). The Medicare donut hole officially closed in the year 2020. You might still reach this threshold, also called the initial coverage limit, but you won’t pay more than 25% of the cost for any covered prescription drugs. 

Even though the donut hole has closed, there is still a chance that you’ll notice a difference in costs from the initial coverage period and the donut hole. If a prescription drug costs $100 and you pay your plan’s $20 copay during the initial coverage period for example, you’ll be responsible for paying 25% of that $100 or $25 during the coverage gap.

The 4 Medicare Part D Stages: 

Stage 1 – Deductible Stage

Many Part D plans require an annual deductible to be met for the cost of prescription drugs before your plan takes over payments. Some Part D plans don’t have a deductible, but this varies between plans. The deductible maximum is $480 in 2022. 

Stage 2 – Initial Coverage Stage

Copayments and coinsurances come into play during this stage. Your share of prescription drug costs are paid by you and your Medicare Part D plan pays the remaining cost for covered medications. You enter the Part D coverage gap once the combined amount that you and your drug plan pay for your prescription drugs reaches a limit of $4,430 in 2022. 

Stage 3 – Medicare Part D Coverage Gap

This stage is where the Medicare “donut hole” occurs. A temporary limit on what Part D will cover for prescription drugs occurs for some, but not all such as members who get Extra Help to pay for their Part D costs. You pay no more than 25% of brand-name and generic prescription drug costs, even though the full cost of these medications will move you closer to the final stage, Catastrophic Coverage. 

Stage 4 – Catastrophic Coverage Stage

In this final stage, you are responsible for only a small coinsurance amount or copayment for covered prescription drugs for the rest of the year. You will start over at stage one at the beginning of your new plan year. 

Does the Medicare donut hole (coverage gap) affect everyone with Medicare prescription drug coverage?

No, not everyone will enter the Medicare donut hole (coverage gap) stage. Let’s get into how avoiding the Medicare donut hole works.

How do you get around the Medicare donut hole (coverage gap)? 

The Part D donut hole begins after you and your Medicare prescription drug plan have spent a certain amount for covered prescription drugs during the calendar year. If your prescription drug costs during the year are less than the predefined amount, you won’t enter the Medicare donut hole stage. 

Your Part D expenses might not reach this limit in situations such as the following:

• If you don’t take many prescription drugs, or those you take are lower-cost generic medications
• If you have other prescription drug coverage from an employer or union that pays a portion of your prescription drug costs

If you receive Extra Help paying Part D costs, you won’t enter the Medicare Part D donut hole.

How does the Medicare donut hole (coverage gap) work?

If your total prescription drug costs (what your plan has paid, plus your deductible, and the copayments and coinsurance you pay) are more than the initial coverage limit for the year, you may be in the Medicare Part D donut hole (coverage gap).

While in the Medicare donut hole (coverage gap), you typically pay a percentage of the cost of your prescription drugs. You’ll pay (at most) 25% of your plan’s cost for every covered prescription drug. You continue to get your prescription drugs from the retail and mail-order pharmacies in your plan’s network.

How long does the donut hole last in Medicare?

According to the Centers for Medicare and Medicaid Services, “ In 2021, Medicare Part D provides affordable prescription drug coverage to over 48.8 million Americans. The Affordable Care Act eliminated the Coverage Gap (“the donut hole”) in the original Part D benefit, reducing patient cost-sharing responsibility for covered medications from 100% to 25%”. 

What costs count toward the Medicare donut hole (coverage gap)?

You only enter the Medicare donut hole (coverage gap) if you and your plan spend a certain combined amount of money within a calendar year. In 2021, this amount is $4,130. Here’s what counts toward the Medicare donut hole:

• Plan deductible
• Coinsurance/copayments for your medications
• Any discount you get on brand-name prescription drugs. For example, if your healthcare plan gives you a manufacturer’s discount of $30 for a medication, that $30 counts toward the Medicare Part D donut hole (coverage gap).

This may not be a complete list.

Here’s what doesn’t count toward the Medicare donut hole (coverage gap):

• Your costs for any prescription drugs you buy that your health plan doesn’t cover
• Your monthly Medicare Prescription Drug Plan premium
• Pharmacy dispensing fees

This may not be a complete list.

How do you get out of the Medicare donut hole (coverage gap)?

After you’ve spent a certain amount of money while you’re in the Medicare donut hole (coverage gap), you reach a limit where you leave the coverage gap and enter a phase called catastrophic coverage.

In 2022, once you have spent  $7,050 out-of-pocket, that’s when you move into the “catastrophic” stage of Medicare Part D coverage and you are out of the coverage gap. At this stage, your health plan pays most of your prescription drug costs for the rest of the calendar year. You pay a small copayment or coinsurance for the cost of covered medications.

Medicare donut hole (coverage gap): an example

Nicole has a Medicare Part D prescription drug plan, and takes costly prescription drugs to treat her medical conditions. This table helps illustrate the Medicare donut hole (coverage gap). Please note that the dollar amounts spent on prescription drugs are only for the purpose of this example involving the fictitious “Nicole.”

Your Medicare Part D prescription drug plan will continue to send you statements listing your prescription drug expenses (explanation of benefits). This statement explains how much you and the plan have paid for covered prescriptions, and which benefit stage you’re in.

How do I get around Medicare donut hole?

Is the donut hole the same for everyone?

What year does the donut hole go away?

Can you get out of the donut hole?