Prescription drug coverage for Medicare and Medicare Advantage enrollees is provided in two ways: Medicare Part D, which can be obtained through a stand-alone prescription drug plan, or a Medicare Advantage plan that includes prescription drug coverage. For individuals who have prescription medications with high costs, you may have experienced the Medicare Part D coverage gap, also known as the “Medicare Donut Hole.” This is when you have to pay a higher percentage of your medication costs after spending a certain amount of money on your drugs. You keep paying this higher amount up to a certain limit before your plan begins paying again. That period where you have to pay the higher costs is where the Donut Hole got its name.
The Affordable Care Act aimed to close the Donut Hole. The period where you must pay a higher proportion of your medication(s) has been reduced from what it used to be. The only other time when you pay the full costs of your medications is when you are accruing costs toward your deductible if your plan has one.
Take a look below at our infographic to see a high-level overview of how the Donut Hole works. Then, click on the toggles below to get an in-depth description of each phase.
*2024 Part D Deductible: $545 *2024 Initial Coverage Limit: $5,030 *2024 Coverage Gap Limit: $8,000
At the beginning of the year, your plan deductible (if it has one) starts over. This is the amount you must pay out-of-pocket before your plan starts paying or cost-sharing.
In 2024, the maximum deductible allowed by Medicare is $545.
Once you meet your deductible, you start only paying the copay or coinsurance your plan issues. A copay is a fixed dollar amount you pay every time you fill your prescription and coinsurance is a percentage of the cost of your prescription. Some plans only have copays.
You and your plan keep cost-sharing the plan’s cost for your drug(s) until you reach the
Once you and your plan have spent $5,030 on your medications, your coverage falls into the Donut Hole. During this period, you pay no more than 25% of the total of your prescription costs. The time and amount it takes to leave the Donut Hole depend on if you take brand-name or generic drugs, as well as the retail cost of the drug. If the drugs are brand-name, the manufacturer usually pays 75% of the cost and you pay 25%. The amount the manufacturer pays and your 25% out-of-pocket costs both count towards reaching the coverage gap limit. However, if you take generic drugs, only your contributions count towards reaching the limit. Take a look at all the costs that count or do not count towards the coverage gap on
In 2024, the coverage gap limit is $8,000. Once you reach this limit you exit the Donut Hole and begin catastrophic coverage.
At the point where catastrophic coverage kicks in, you pay substantially less for your medication(s). You’ll pay the greater of 5% coinsurance or $4.15 for generic drugs and $10.35 for brand-name drugs.
The Kaiser Family Foundation reports that 1.5 million Medicare beneficiaries reached the Catastrophic Coverage limit in 2019.
If you have high drug costs and are looking to enroll in Medicare soon, you will want to take great care in selecting a Part D plan. If you qualify, there is also a federal Extra Help Program to assist with drug costs. Be aware that Medicare recipients are excluded from using manufacturer copay assistance coupons that are advertised on TV, in magazines, and in doctor’s offices to reduce the costs of brand-name medications. But some manufacturers do have income-dependent assistance programs which may lower the costs of expensive drugs. Caribou’s HealthPlanning Analysis can help provide the most suitable options according to your drug coverage.
Learn More:
Closing the Medicare Part D Coverage Gap: Trends, Recent Changes, and What’s Ahead | Kaiser Family Foundation
Medicare Part D Redesign | The Commonwealth Fund
Last Revised November 6th, 2023
