Medicare "Donut Hole"

When Part D started in 2006, the donut hole was a big deal, but not in a good way like an actual donut hole. It was literally a hole in coverage. People who reached the donut hole had to pay the full cost of their prescriptions. And while the Part D coverage gap is going away in 2025, for now, it’s still important to understand what it means for your out-of-pocket costs.

Medicare Part D is your prescription drug coverage. It’s available to everyone with Medicare Parts A and/or B, but you can only get it through private Medicare health insurance plans. You can enroll in a Part D plan separately or through a Medicare Advantage plan that combines medical and prescription drug coverage in one plan.

Each stage of Part D is like a steppingstone throughout the year. The Medicare Part D donut hole is the third stage. The four stages start over on Jan. 1 of each year.

Once you enter the donut hole, you stay there until you’ve spent a specific amount for covered drugs. (People who qualify for the Extra Help program won’t enter the coverage gap.) This amount changes each year, and it includes:

• What you’ve paid for the deductible, copayments or coinsurance for covered drugs
• The amount of the manufacturer discount for brand-name drugs in the gap

It doesn’t include what you pay for your monthly premium or what your plan paid for covered drugs in the gap. Once you’ve spent the $8,000 maximum amount in the donut hole, you move on to the catastrophic coverage phase.

The amount of time you stay in the Part D coverage gap depends on what and how frequently you pay. Generally, you stay in the donut hole until you pay the set limit that’s determined by Medicare each year. In 2024, you enter the donut hole once you and your plan have spent $5,030 on covered drugs, and you remain in the coverage gap until your out-of-pocket costs reach $8,000.