What Is the Medicare Donut Hole or Coverage Gap?

The "donut hole" or "doughnut hole" is a stage of health insurance coverage where insurance covers less of your prescription drug costs.

In 2024, you reach the donut hole stage when your total drug costs reach $5,030. That includes what you and your plan have paid for your medications. All Medicare prescription drug plans, including Part D plans and Medicare Advantage plans with drug coverage, include a donut hole phase.

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What is the Medicare donut hole?

The Medicare Part D donut hole is one of four phases of Medicare prescription plans. It's a temporary gap, or "hole," in the middle of your drug coverage during the calendar year. During the donut hole, which is now called the coverage gap, you pay 25% of the cost of your medications.

  1. Deductible phase
  2. Initial coverage phase
  3. Donut hole/coverage gap phase
  4. Catastrophic phase

The donut hole applies to Medicare Part D and Medicare Advantage plans.

In 2024, you enter the donut hole when your total drug costs, including what you and your plan have paid, reach $5,030. While in the donut hole, you pay 25% of your prescription costs. Once your total drug costs reach $8,000, your plan covers all your drug costs. This is called the catastrophic phase.

donut hole

Before 2019, you had to pay 100% of all your drug costs during this stage. This was the true donut hole. This hole closed in 2019 for brand-name drugs and in 2020 for generic drugs.

Now, you only pay 25% of your drug costs during this stage, which is called the "coverage gap." The gap will close entirely in 2025.


How does the Medicare donut hole work?

When you have Medicare drug coverage, whether from a Part D plan or on a Medicare Advantage plan, you go through several different phases of coverage each year, depending on how much you've already spent.

The donut hole, now called the coverage gap, is the third phase, where you have to pay a higher portion of your drug costs. Each phase alters how much you pay for your medications.

Medicare prescription drug coverage phases

Deductible phase

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On Jan. 1, you enter the deductible phase of your drug plan. You pay the full price for prescriptions until you reach your deductible, which varies by plan. The highest your deductible can be in 2024 is $545.

Initial coverage phase

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You pay your plan's set dollar limits or a percentage of the bill, called copays and coinsurance, for your drugs. Once the total cost that you and your plan have paid reaches $5,030, you enter the coverage gap.

Donut hole/coverage gap

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You pay 25% of the cost for your drugs. Once the total cost reaches $8,000, you enter the final stage of coverage. You paid 100% of your costs in the true donut hole stage, which closed in 2020.

Catastrophic phase

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At this point, you do not pay anything for your covered drugs. Previously, you still had to pay some of the costs for your drugs in this phase, but the costs were eliminated starting in 2024.

Just because you have prescription drug coverage doesn't mean that every single medication is covered. Your plan might not cover some drugs. If you need a drug that isn't covered, you have to pay the full cost.

The list of prescription drugs that a plan covers is called a formulary. When you're shopping for coverage, you can enter the prescription drugs you take to make sure you choose a plan that covers your medications.


Ways to reduce prescription costs

Even with a Part D plan or a Medicare Advantage plan, prescription drugs can be costly. But there are programs that can help cover your share of prescription drug costs.

  • Federal help: The Extra Help Program, also called the Low-Income Subsidy (LIS), is a Medicare program that pays toward out-of-pocket drug costs like premiums, deductibles, copays and coinsurance. With Extra Help, you're also exempt from late enrollment fees and Part D donut hole costs.
  • State help: Some states offer financial help with drug prices, although eligibility and the level of assistance varies. Medicare.gov has an online search tool to help you find a program in your area. These programs are called state pharmaceutical assistance programs or SPAPs.
  • Company help: Some drug companies offer programs called patient assistance programs, or PAPs, to help with costs if you qualify. Typically, eligibility is based on income.
  • Generic drug substitutions: Your doctor or pharmacist may be able to substitute a generic for an expensive brand-name medication.
  • Cash discounts: Sometimes, if you pay for your medications without using your insurance, you can get a discount. Keep in mind that drugs you buy outside your insurance plan won't reduce your deductible or help get you out of the donut hole. It's best to ask your insurance company to guide you through this decision.

Frequently asked questions

Will Medicare ever get rid of the donut hole?

Yes, the coverage gap is going to completely close in 2025. The true donut hole refers to a stage in your drug coverage where you had to pay 100% of your medication costs. The donut hole closed in 2019 for name-brand drugs and 2020 for generic drugs. Now, the same phase is called the "coverage gap," and it’s closing in 2025. Along with the federal drug price negotiations, this should help you save money on your medications.

How do you get out of the Medicare donut hole?

The only way to get out of the donut hole is to accrue $2,970 more in drug costs to reach $8,000 for the year. Your total drug cost includes what you paid toward your deductible and your copays, as well as the costs you and your insurance company pay during the donut hole stage. Once you hit $8,000 in total costs, your Part D or Medicare Advantage plan pays the full cost of your medications. This is called the catastrophic coverage stage.

Is there a way to avoid the donut hole in Medicare?

No. If your total drug costs reach $5,030, you will enter the donut hole. However, those with low incomes may qualify for programs to reduce their prescription costs and get financial assistance for their share.

Is there a Medicare plan that covers the donut hole?

No, you can't get separate insurance to cover the donut hole. During the donut hole period, you'll pay a quarter of the total cost of your prescriptions until your costs reach $8,000. Then your plan will pay all your drug costs, as long as the medication is covered.


Sources

Medicare Part D definitions, coverage phases and costs were sourced from Medicare's website, Medicare.gov. Information about the Extra Help program also was obtained from Medicare.gov.

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