Medicare Part D prescription drug coverage is organized into multiple phases or stages. In the third phase, the ‘donut hole’ coverage gap, your out-of-pocket costs for covered drugs might go up significantly. But that's changing soon: 2024 is the last year for the donut hole.
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Here are answers to common questions about what the Medicare donut hole is, how it works and what’s coming next.
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What is the ‘donut hole’ in Medicare?
The donut hole is the third of four phases or stages of Medicare Part D coverage. It comes after the deductible and initial coverage phases, but before catastrophic coverage. In the donut hole, you pay 25% of the cost of your drugs out of pocket. The coverage for generic drugs works differently from brand-name drugs. For generic drugs, only the amount you pay will count toward getting you out of the coverage gap. For brand-name drugs, the amount you pay plus the manufacturer discount payment counts as out-of-pocket spending.
🤓Nerdy Tip
You might see these divisions of Medicare Part D coverage described as “phases” or “stages” in documents from Medicare or your insurance company.
What are the four stages for the Medicare donut hole?
Medicare Part D coverage takes place in four stages or phases according to how much you and your plan have spent for your covered drugs over the course of a year. These phases are deductible, initial coverage, donut hole (or coverage gap) and catastrophic coverage.
Here are all four phases in order:
Phase 1: Deductible
At the start of the year, you must pay for your drugs out of pocket until you meet your plan’s annual deductible, if it has one. The maximum you could pay is $545 in 2024.
For example, if your Part D deductible is at least $100, you might pay $100 for a 30-day supply of covered drugs.
This phase lasts until you’ve met the plan’s deductible.
Phase 2: Initial coverage
After you’ve met your plan’s annual deductible, the plan starts to pay for some or all of the cost of your covered drugs. You pay copays and/or coinsurance according to your plan’s formulary: a tiered list of which drugs the plan covers and how.
For example, you might owe a $10 copay instead of the full $100 cost of your drugs.
This phase lasts until you and your plan spend a combined total of $5,030 in 2024.
Phase 3: Donut hole (coverage gap)
In the donut hole, your plan’s copays and/or coinsurance no longer apply. Instead, you pay up to 25% of the cost of your covered drugs. For many drugs on lower formulary tiers, this 25% will be more expensive than the copays or coinsurance you paid before.
For example, for drugs with a full price of $100, you would owe $25 (plus a portion of the pharmacy’s dispensing fee).
But for drugs on higher tiers, the donut hole might actually represent a discount. For example, the 25% you’d owe in the donut hole could be lower than a 45-50% coinsurance for a Tier 4 drug during the initial coverage phase.
This phase lasts until you’ve spent $8,000 in 2024.
Phase 4: Catastrophic coverage
Starting in 2024, when you reach catastrophic coverage, you’re done paying out of pocket for the year.
That’s a change from prior years. Previously, you’d owe the higher of a 5% coinsurance or certain copays: $4.15 for generic drugs or $10.35 for brand-name drugs in 2023.
» MORE: How much does Medicare Part D cost?
What is the Medicare donut hole in 2024?
For 2024, the Medicare donut hole starts after you and your Part D plan together have spent $5,030 total on covered drugs for the year — $370 more than in 2023. In the donut hole in 2024, you pay the same 25% out of pocket.
How do you get out of the Medicare donut hole?
You get out of the Medicare donut hole once you spend a total of $8,000 in 2024 on covered prescription drugs. Then, you enter the catastrophic coverage phase and no longer pay out of pocket in 2024.
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Is there any insurance that covers the donut hole?
Some Medicare Part D plans offer “gap coverage” to reduce out-of-pocket costs in the donut hole. However, gap coverage might apply only to certain drugs, and plans with gap coverage might have higher premiums. Medicare.gov can help you compare costs based on your prescriptions.
Are there ways to avoid the Medicare Part D donut hole?
If you don’t spend much on prescription drugs — for example, if you mostly take lower-cost generic drugs — you might not reach the donut hole threshold before the end of the year. And if you receive the Medicare Extra Help low-income subsidy, there’s no coverage gap.
Is the Medicare donut hole going away in 2024?
2024 is the last year for the Medicare donut hole. Starting in 2025, the Inflation Reduction Act’s new $2,000 out-of-pocket spending cap for Medicare Part D takes effect. After that $2,000 threshold, you’re done paying Part D copays and coinsurance for the year.
The parts of Medicare
Read more about the different parts of Medicare and what they cover.
Medicare Part A (hospital insurance).
Medicare Part B (medical insurance).
Medicare Part C (Medicare Advantage).
Medicare Part D (prescription drug plan).
Medicare Supplement Insurance (Medigap).
If you have additional questions about Medicare, visit Medicare.gov or call 800-MEDICARE (800-633-4227, TTY 877-486-2048).
