What is the Donut Hole?
Most Medicare Part D drug plans have what is called a donut hole or a coverage gap. After your initial coverage period, you may enter the “donut hole,” which is a temporary change to your copays for the remainder of the year. Once you and your plan have spent $4,430 on covered drugs in 2022, you’re in the coverage gap. While in the coverage gap (donut hole), you’ll pay 25% of the cost of the drug.
A few important things to remember are:
1. Not everyone will enter the coverage gap. If your total drug costs (including what the insurance company pays) don’t reach $4,430 you won’t be affected by the donut hole.
2. People with Medicare who get Medicare extra help to pay Part D costs won’t enter the coverage gap.
3. If you have Original Medicare only (Parts A and B) and don’t have a Medicare prescription drug plan or a Medicare Advantage plan that includes Part D, you will not be affected by the donut hole.
How Does the Medicare Donut Hole Work?
Once you enter the coverage gap, you’ll pay no more than 25% of the cost for your plan’s covered brand-name prescription drugs. You’ll get this discounted rate if you buy your prescription drugs from a pharmacy or order them by mail.
Some plans may offer better coverage for less money during the coverage gap. The discount will come off of the price that your plan has set with the pharmacy for that specific drug.
What you pay and what the drug manufacturer pays will count towards out-of-pocket spending that helps you eventually get out of the “donut hole.”
Your plan will cover 75% of the cost of generic drugs during the “coverage gap.” You’ll pay the remaining 25% of the price. Coverage for generic drugs works differently than discounts for brand-name drugs. For generic drugs, only the amount you pay will count toward getting you out of the coverage gap.
For example, if a drug’s total cost is $100 and you’re required to pay a $20 copay during the initial coverage period, you will be responsible for paying $25 (25% of $100) during the coverage gap.
Medicare Part D coverage stages
Understanding the coverage stages for your prescription drug coverage may be helpful when managing your costs.
Stage 1—Deductible Stage
Some drug plans have an annual deductible. This means that you must pay this before the plan pays. The deductibles can vary between plans, and some have no deductible. In 2022, the Part D deductible can’t exceed $480. Once you reach your deductible, your initial coverage kicks in.
Stage 2—Initial Coverage Stage
If your plan has no deductible, this stage begins immediately. Or when the prescription payments you have made equal your plan’s deductible. During this stage, you will pay your copayment or coinsurance, and your plan will help pay for your covered prescription drugs.
For most plans, the initial coverage period ends if the combined amount you and your drug plan pay reaches a certain level during the year—that limit is $4,430 in 2022.
Stage 3—Coverage Gap
After your total drug costs reach $4,430, you enter the coverage gap (aka the donut hole).
Once in the coverage gap, you will pay no more than 25% of the cost for prescription drugs covered by your Part D plan, although the full cost of those drugs will be used to move you closer to the Catastrophic Coverage Stage.
Stage 4—Catastrophic Coverage Stage
When your out-of-pocket expenses reach $7,050 (in 2022), the final phase, catastrophic coverage, will kick in.
Then you are responsible for just $3.95 for generic medications and $9.85 or 5% of your drug costs in the catastrophic coverage phase, whichever costs more. You will remain in this phase until the end of the calendar year.
Your monthly statements from your drug plan provider will show your current status regarding the donut hole.
How to Avoid the Medicare Donut Hole
- Review drug plans annually- We reach out to our clients during the annual election period and offer classes on how to review drug plans and enroll in a new plan if necessary.
- Use generic medications when possible- Many drugs have a generic version and work just as well.
- Compare pharmacies- If you use one of your plan’s preferred pharmacies, you will likely pay a little less for your medications.