Medicare coverage gap (“donut hole”) explained

As your prescription medication spending increases throughout the year, you move through the stages of prescription drug coverage. The coverage cap stage, also known as the donut hole, is the second stage of drug coverage. It is a temporary limit on the amount your plan will cover for drugs. Not everyone will enter the coverage gap stage.

How does the donut hole work?

The coverage gap, or donut hole, starts when the combined yearly cost of covered drugs paid by you and your plan reaches $5,030. You stay in this stage until your out-of-pocket costs, as well as any manufacturer’s discount payment provided for brand-name drugs, reach $8,000.
In the donut hole, the amount you pay for drugs depends on whether they are covered brand-name drugs or generic drugs.

Brand-name drugs:

You pay up to 25 percent of the plan’s cost and a percentage of the dispensing fee. Manufacturer discounts or your plan cover the rest.
The amount you pay, plus the manufacturer’s discounts, will equal 95 percent of the drug's cost. This total amount goes towards your out-of-pocket costs to help you get out of the coverage gap.

Generic drugs:

You pay 25 percent of the drug’s cost and Medicare pays the remaining 75 percent.
Only the amount you pay counts toward your out-of-pocket spending to help get you out of the coverage gap.

How do you get out of the Part D donut hole?

You are in the coverage gap stage until your total out-of-pocket costs reach $8,000. You then enter the catastrophic coverage stage. At that time, you will no longer pay for your prescriptions. Your plan will be responsible for paying for your share of the cost for drugs for the rest of the year. Beginning in 2025, the out-of-pocket limit to reach the catastrophic coverage stage will drop to $2,000.

To get out of the coverage gap stage, it is important to know what does and does not count toward your out-of-pocket spending.

Costs that count toward the $8,000 out-of-pocket limit:

Deductibles, copays, and coinsurance
Amounts paid during the initial coverage stage
Your costs in the donut hole
Manufacturer’s discounts in the donut hole
Amounts paid by others on your behalf (family members, financial assistance programs, charities)

Costs that do not count toward out-of-pocket costs:

What your plan pays for brand-name or generic drugs
Costs you paid for drugs not covered by your plan
Drugs from out-of-network pharmacies

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What is Medicare Part D Coverage Gap ("Donut Hole")?

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