The Medicare Part D Coverage Gap (“Donut Hole”) Made Simple
This article was updated on: 03/13/2018
When it comes to Medicare prescription drug coverage, you might have questions surrounding the Medicare Part D coverage gap, also known as the “donut hole.” The coverage gap is a temporary limit on what most Medicare Part D Prescription Drug Plans or Medicare Advantage Prescription Drug plans pay for prescription drug costs. While you’re in the coverage gap, you might pay higher costs for brand-name and generic drugs.
The coverage gap applies to both stand-alone Medicare Prescription Drug Plans and Medicare Advantage Prescription Drug plans, but not everyone enters it. If you’re currently taking medications or concerned about lowering your prescription drug costs, it may be helpful for you to understand what the coverage gap is and how to avoid it.
What is the coverage gap (“donut hole”), and when does it start?
For those who are new to the coverage gap, or “donut hole,” learning about the different Medicare Part D coverage phases is a good place to start. Your costs and what your Medicare plan may pay for prescription drug costs will depend on which coverage phase you’re in. Typically, each new coverage phase begins once your spending has reached a certain amount. The coverage gap is one of the coverage phases under Medicare Part D.
Stand-alone Medicare Prescription Drug Plans and Medicare Advantage Prescription Drug plans can have the following four coverage phases, as applicable:
- Deductible phase: For most stand-alone Medicare Prescription Drug Plans and Medicare Advantage Prescription Drug plans, you’ll pay 100% for medication costs until you reach the yearly deductible amount (if your plan has one). After you reach the deductible, the Medicare plan begins to cover its share of prescription drug costs. The deductible amount may vary by plan, and some plans may not have a deductible. If your Medicare plan doesn’t have a deductible, then you’ll start your coverage in the initial coverage phase (see below).
- Initial coverage phase: After you’ve reached the deductible, you’ll enter the initial coverage phase, where you will pay the plan’s cost share for covered medications. For example, if your plan benefit includes a 25% coinsurance in this phase and you’re taking a medication that costs $400 a month, your out-of-pocket-cost would be approximately $100 a month. Once you and your plan have spent $3,750 in 2018 for covered drugs, including the deductible amount, you’ve reached the initial coverage limit and have entered the coverage gap. This initial coverage limit may change annually.
- Coverage gap, also known as the “donut hole”: Not everyone will reach this phase; it begins if you and your plan spend a combined $3,750 in 2018 as described above. While in the coverage gap, you’ll typically pay 35% of the plan’s cost for brand-name drugs and 44% of the plan’s cost for generic drugs in 2018. You’re out of the coverage gap once your yearly out-of-pocket drug costs reach $5,000 in 2018. Once you have spent this amount, you’ve entered the catastrophic coverage phase. The costs paid by you or someone on your behalf (such as a spouse or loved one) for Part D medications on your plan’s formulary, or list of covered drugs, will count toward your out-of-pocket costs and help you get out of the coverage gap.* Additionally, manufacturer discounts for brand-name drugs count towards reaching the spending limit that begins catastrophic coverage. If your plan requires you to get your prescription drugs from a participating pharmacy, make sure you do so, or else the costs may not apply towards getting out of the coverage gap. Keep in mind that costs that are paid for you by other insurance you may have, such as prescription drug coverage through an employer, won’t count towards your out-of-pocket spending.
- Catastrophic coverage phase: Again, not everyone will reach this phase; it begins if your out-of-pocket costs reach $5,000 in 2018. During the catastrophic coverage phase, you’ll only pay a small coinsurance or copayment for covered prescription drugs for the remainder of the year.
* The formulary may change at any time. You’ll be notified by the Medicare plan if necessary.
What costs count towards getting out of the coverage gap (“donut hole”)?
Once you’ve entered the coverage gap (“donut hole”), it’s important to understand which out-of-pocket costs count towards helping you reach the catastrophic coverage phase. Remember, once your prescription drug spending reaches $5,000 in 2018, you’ll be out of the coverage gap and have catastrophic coverage for the rest of the year.
The following costs count towards your out-of-pocket spending and getting you out of the coverage gap:
- Your yearly deductible
- Copayments and coinsurance costs spent by you and your plan during the initial coverage phase
- Copayments and coinsurance spent by you in the coverage gap (in 2018, this is 35% of the plan’s cost for brand-name drugs and 44% of the plan’s cost for generic drugs)
- The 50% manufacturer discount for brand-name drugs while you’re in the coverage gap
What costs don’t count towards getting out of the coverage gap (“donut hole”)?
Not all out-of-pocket costs count towards reaching catastrophic coverage. The following costs don’t count towards getting you out of the coverage gap:
- The monthly premium for your Medicare Prescription Drug Plan or Medicare Advantage Prescription Drug plan
- The costs you pay for prescription drugs that aren’t covered by your Medicare plan
- The dispensing fee that your pharmacy may charge
How do I avoid the Medicare Part D coverage gap (“donut hole”)?
Now that you know about the coverage gap (“donut hole”), here is some good news:
- Many Medicare beneficiaries won’t have to pay the increased prices during the coverage gap because their prescription drug costs won’t reach the initial coverage limit of $3,700 in 2018.
- People who qualify for Extra Help (or the Low-Income Subsidy) will avoid the coverage gap, or “donut hole.” Extra Help is a federal program that helps eligible individuals with limited income pay for Medicare Part D costs such as premiums, deductibles, and copayments/coinsurance. If you qualify for this assistance, you won’t enter the coverage gap. You can apply for the program through your state’s Medicaid department or the Social Security Administration.
- Although most Medicare Prescription Drug Plans and Medicare Advantage Prescription Drug plans have a coverage gap, some plans offer additional coverage during the coverage gap. Costs for this additional coverage in the coverage gap will vary by plan.
- Federal legislation is reducing the coverage gap every year until it reaches 25% in 2020. In 2020, beneficiaries will pay 25% of the plan’s cost for brand-name drugs and 25% of the plan’s cost for generic drugs in the coverage gap.
Managing your out-of-pocket prescription drug costs is a big part of avoiding the coverage gap. Here are some tips for how you can lower the amount you spend on medications so that you don’t enter the coverage gap:
- Many expensive prescription drugs have a generic or lower-cost alternative. Switching to lower-cost drugs may help you avoid entering the coverage gap. Talk to your doctor or prescriber about whether there are lower-cost prescription drugs available that may be just as effective for your condition.
- Individuals who don’t meet income requirements for Extra Help may be eligible for financial assistance from the drug manufacturer of the brand-name drug. Visit Medicare.gov to find out if there’s a Pharmaceutical Assistance Program for the medications you take.
- There are also State Pharmaceutical Assistance Programs available, depending on where you live. These programs may help with Medicare Part D costs, and you may be eligible even if you don’t qualify for Extra Help. Visit Medicare.gov to find out if your state has a program.
- Taking the time to compare your Medicare Part D coverage options may help lower your out-of-pocket prescription drug costs and keep you out of the coverage gap. Costs like copayments, coinsurance, and deductibles can vary greatly from plan to plan and may affect your chances of entering the coverage gap.
What if I have questions about the coverage gap (“donut hole”)?
If you have questions about how the coverage gap works and how to avoid it, I can help. A licensed insurance agent such as myself can help you compare formularies for the Medicare Prescription Drug Plans and Medicare Advantage Prescription Drug plans we offer to determine if your prescriptions are covered and within your budget. This makes choosing a Medicare Prescription Drug Plan or Medicare Advantage Prescription Drug plan that much simpler. (As mentioned earlier, keep in mind that formularies may change at any time; your Medicare plan will notify you if necessary.) Remember, because your risk of entering the coverage gap depends, in part, on how high your out-of-pocket costs are, it may be helpful to research if there are Medicare plan options that could save you money.
Whether you’re enrolling in Medicare Part D for the first time or want to reevaluate your current prescription coverage, I can help guide you through the maze of Medicare Part D prescription drug coverage and the coverage gap.
- Set up a phone appointment with the link below if you’d like one-on-one assistance finding a plan. Or, you can click on the link below to have me email you some customized plan options available through eHealth.
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- To get help more quickly, just call us as described right below. You can ask for me by name or speak to another licensed insurance agent.
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