The Donut Hole or Coverage Gap: What You Need to Know

August 23, 2023 | Tom Peterson

The Donut Hole or Coverage Gap

What is it? Will it affect me? When will that happen and how long does it last?

You may have heard the phrase “Donut Hole” on the news. Unfortunately, this isn’t the sweet sugary treat. Most Medicare Drug plans (either stand alone or embedded with your health plan) will have a Donut Hole – a gap in coverage.

It’s important to note that not everyone will enter the coverage gap or donut hole, but for those who do you will want to understand how the different stages affect your medication costs throughout the year.

Medicare regulates and sets the dollar amount you will spend before you enter the donut hole – and what your cost sharing will be once you reach the donut hole. Medicare also sets the limit of your out of pocket cost while in the coverage gap – before moving into the next phase known as Catastrophic coverage. These thresholds change each year, and with each calendar year, you start over at the first stage or the deductible.

For several years leading up to 2020, the donut hole underwent significant changes decreasing the amount Medicare recipients were responsible for. Since then, those who reach the donut hole pay 25% of the cost of their medications, whereas in the past, they were subject to a higher percentage.

Let’s take a closer look at the 4 stages in a standard Medicare Part D plan:

Stage 1

DEDUCTIBLE – You pay 100%
- The amount you pay out of your pocket before you plan begins to pay

Medicare Prescription Deductibles: What You Need To Know

Stage 2

INITIAL COVERAGE – You share the cost with your Insurance Part D plan
- Copays (fixed flat amounts)
- Coinsurance (percentage of the retail cost)

Stage 3

COVERAGE GAP – DONUT HOLE (not everyone enters this stage)
- When the shared retail cost between you and the insurance company reaches $4,660 (2023) – you move into the Donut Hole also known as the Coverage Gap.
- Cost for prescriptions change – In 2023 you will pay a maximum of 25% for brand name and generic drugs. (this is based on the retail cost)
- Cost sharing continues until YOUR out of pocket costs reach $7,400 limit. Once you reach $7,400 (2023) out of pocket – you move out of the Coverage Gap to the 4th and final stage – Catastrophic coverage.

Stage 4

CATASTROPHIC COVERAGE
- When you have spent $7,400 (2023) out of your pocket – you move into Catastrophic coverage.
- Your $7,400 out of pocket includes the following: Deductible, copayments and coinsurance, and what you pay while in the coverage gap. It does NOT include your plans premium, over the counter drugs or drugs that are not on your plans formulary. It also doesn’t cover drugs you get through a formulary exception.
- Cost of your medications change to fixed copay amounts. In 2023 you will pay the following: $10.35 for brand name drugs and $4.15 for generic drugs.
- You continue to pay this amount for the rest of the calendar year – then it starts all over again.

Not sure if the Medicare Donut Hole will impact you? Our team is here to help – reach out to us today.

This is an updated blog post that was originally published in 2018.

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The Donut Hole or Coverage Gap: What You Need to Know