What is the Medicare “donut hole”?
How does the coverage gap known as the “donut hole” work in Medicare prescription drug plans?
The coverage gap, often referred to as the “donut hole”, is a temporary limit on what your Medicare Part D prescription drug plan will pay for your medications. This stage occurs after you and your plan have spent a certain amount on covered prescription drugs. Here’s how the donut hole works and what it means for your out-of-pocket costs:
1. Initial Coverage Stage:
In the Initial Coverage Stage, you pay copayments or coinsurance for your medications, and your Part D plan covers the rest. This continues until your total drug costs (what both you and your plan have paid) reach $5,030 in 2024.
2. Entering the Coverage Gap (Donut Hole):
Once your total drug costs (including both your payments and what your plan has paid) exceed $5,030 in 2024, you enter the coverage gap (the donut hole). In this phase, your out-of-pocket costs for prescription drugs increase.
3. What You Pay in the Donut Hole:
During the coverage gap, you’ll pay up to 25% of the cost for both brand-name and generic drugs. Here’s how it breaks down:
Brand-name drugs: You pay 25% of the plan’s cost for the drug. The manufacturer discount (70%) and a small portion paid by the plan (5%) cover the rest. The full cost of the drug (including the 70% manufacturer discount) counts toward your out-of-pocket spending, helping you reach the next stage faster.
Generic drugs: You pay 25% of the plan’s cost for generics. The plan covers the remaining 75%. Only the amount you pay counts toward reaching the next stage.
4. Exiting the Donut Hole: Catastrophic Coverage:
You exit the donut hole and enter the catastrophic coverage stage once your total out-of-pocket costs reach $8,000 in 2024. This amount includes:
What you’ve paid for medications (including deductible, copayments, and coinsurance).
The manufacturer discount on brand-name drugs during the coverage gap.
After exiting the donut hole, you pay only a small copayment or coinsurance for your prescriptions for the rest of the year. Medicare Part D will cover the majority of the costs during this phase.
5. What Counts Toward the Donut Hole?
Your out-of-pocket costs that count toward the donut hole include:
Your deductible.
Your copayments and coinsurance during the Initial Coverage Stage.
What you pay in the donut hole (both for brand-name and generic drugs).
The manufacturer discount on brand-name drugs.
6. How to Avoid or Minimize Costs in the Donut Hole:
If you have high prescription drug costs, it’s important to plan ahead for the coverage gap. Some ways to manage costs include:
Switching to lower-cost generic drugs if possible.
Using Extra Help, a federal program that reduces drug costs for people with limited income and resources. If you qualify, the donut hole may not apply to you.
Exploring other options such as state pharmaceutical assistance programs (if available in your state).
Key Takeaways:
The donut hole is a temporary phase where you pay 25% of drug costs after your total drug spending reaches $5,030 in 2024.
After your out-of-pocket spending reaches $8,000, you enter catastrophic coverage, where your costs decrease significantly for the rest of the year.
For help understanding how the donut hole affects your prescription drug costs or finding ways to reduce your out-of-pocket expenses, schedule an appointment with a Tsunami Advisor here: Schedule an Appointment.
