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Medicare Part D Coverage Gap (“Donut Hole”)

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If you have Medicare prescription drug coverage, you need to be aware of the Medicare Part D coverage gap, also known as the “donut hole.” This is a period of time when you might have to pay more for your prescription medications.

Not everyone will encounter the coverage gap. It begins after you and your plan have spent a certain amount for your prescription drug coverage, and ends when you’ve reached a different spending threshold.

  • The coverage gap applies to stand-alone Medicare Prescription Drug Plans and Medicare Advantage Prescription Drug plans.
  • When you and your plan have spent a combined amount of $4,020 (in 2020) – including the plan deductible – the coverage gap begins.
  • Then, instead of paying your usual copayment or coinsurance for your medications, you’ll typically pay a maximum of 25% of the plan’s cost of covered brand-name drugs, and 25% of the plan’s cost of generic drugs, in 2020.
  • If your spending totals $6,350 (in 2020), the coverage gap ends and you have “catastrophic coverage. From that point until the end of the plan year, you pay only a copayment or coinsurance for your prescriptions.

What counts toward the coverage gap (“donut hole”) spending threshold

Once you’ve entered the coverage gap, Medicare counts the following amounts toward your out-of-pocket spending for the year:

  • The amount you pay for your prescription medications
  • Your plan’s annual deductible
  • The copayments or coinsurance you’ve paid
  • The plan’s cost for any covered brand-name drug you’ve purchased through your plan. Note that this doesn’t apply to generic drugs. For example, if a brand-name drug costs $50:
    • You might pay 25% of that cost ($12.50).
    • Suppose the manufacturer discount for this drug is $35 (70%). Although you paid $12.50, Medicare will count $47.50 towards your out-of-pocket spending ($35 + $7.50).

In 2020, 95% of the price will count as out of pocket costs. This includes the 25% you pay and the 70% manufacturer discount payment.

The manufacturer’s discount should show up on the Explanation of Benefits document that Medicare sends you every month that you’ve bought prescriptions. If you don’t see a discount listed for a covered brand-name drug you bought, contact your plan and ask about it.

What doesn’t count toward the coverage gap (“donut hole”) spending threshold

During your coverage gap, Medicare does not count the following amounts toward your out-of-pocket spending for the year:

  • The amount you pay for any prescription medications that aren’t covered by your plan
  • Your plan’s monthly premium
  • Any pharmacy dispensing fee that your drugstore may charge
  • Any amount paid by an Employer Group Health Plan, Auto Insurance, Workers’ Compensation, Liability Insurance, the Federal Employees Health Benefit Program, Veterans Administration, Tricare, and by Medicaid.

Catastrophic coverage

If your out-of-pocket spending for Medicare Part D (as listed in “What counts toward the coverage gap (donut hole) spending threshold” above) totals $6,350 (in 2020), you’ll pay only a coinsurance or copayment for your medications for the rest of the plan year.

Getting help paying your prescription drug costs

If you need help paying for your medications:

  • You might want to see if you qualify for Medicare Part D Extra Help, a government-sponsored low-income subsidy program. To find out if you qualify, contact the Social Security Administration or your state Medicaid office.
  • Some pharmaceutical manufacturers offer lower prices through the Pharmaceutical Assistance Program.

This website and its contents are for informational purposes only. Nothing on the website should ever be used as a substitute for professional medical advice. You should always consult with your medical provider regarding diagnosis or treatment for a health condition, including decisions about the correct medication for your condition, as well as prior to undertaking any specific exercise or dietary routine.

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