The Donut Hole Is a Gap in Medicare Part D Coverage

The donut hole is a coverage gap in Medicare Part D (prescription drug coverage) where you pay more out of pocket for medications. Once you and your plan together spend a certain amount on covered drugs in a calendar year, your coverage temporarily stops. You then pay the full price for prescriptions until your total out-of-pocket spending reaches a second threshold, at which point catastrophic coverage kicks in and your costs drop again.

The donut hole exists because of how Medicare Part D is structured. Your plan covers some costs, you pay a copay or coinsurance, and the plan counts both amounts toward the spending thresholds. When combined spending hits the first limit (called the initial coverage limit), you enter the gap. When your own out-of-pocket costs hit the second limit (called the out-of-pocket threshold), you leave the gap and enter catastrophic coverage.

The dollar amounts that trigger the donut hole change each year. In 2024, the initial coverage limit is $5,850 and the out-of-pocket threshold is $8,550, but these figures are adjusted annually for inflation. Your Part D plan materials will tell you the exact amounts for your coverage year.

Key Takeaways

  • The donut hole is a temporary gap in Part D coverage where you pay full price for drugs after you and your plan spend a set amount together.
  • Once you enter the donut hole, you pay the full retail price of medications until your own out-of-pocket spending reaches the catastrophic threshold.
  • The dollar amounts that trigger the donut hole change yearly, so check your plan's annual materials to know when you might hit it.
  • Generic drugs and manufacturer discounts can reduce what counts toward your out-of-pocket costs and help you exit the donut hole faster.

How the Donut Hole Works Step by Step

Understanding the donut hole requires tracking two separate spending totals: what you and your plan pay together, and what you pay alone. Your plan sends you a summary each month showing both numbers.

In the first stage, you pay your regular copay or coinsurance for each prescription. Your plan pays the rest. Both amounts count toward the initial coverage limit. Once combined spending reaches that limit (for example, $5,850 in 2024), you enter the donut hole.

In the donut hole, you pay the full retail price of each drug with no plan help. However, only your portion of that price counts toward your out-of-pocket threshold. Once your own spending reaches the second limit (for example, $8,550 in 2024), you exit the donut hole and enter catastrophic coverage, where your plan covers most costs again and you pay only a small copay.

Not all medications count the same way. Brand-name drugs may have manufacturer discounts that reduce what you pay in the donut hole, and those discounts count toward your out-of-pocket costs. Generic drugs are usually cheaper to begin with. Your plan's formulary (the list of covered drugs) shows which drugs are available and at what tier.

Who Hits the Donut Hole and When

Not everyone enters the donut hole. If your annual drug costs are low, you may never reach the initial coverage limit. People who take multiple medications, especially brand-name drugs, are more likely to hit it.

The timing depends on when you fill prescriptions and how much they cost. Someone who fills expensive medications early in the year may enter the donut hole by summer. Someone who spreads prescriptions throughout the year or takes lower-cost drugs may avoid it entirely.

If you have other insurance alongside Medicare Part D — such as coverage from a current or former employer, or Medicaid — that coverage may help pay costs in the donut hole. Tell your Part D plan about any other coverage you have, because it can affect how costs are counted and what you owe.

Strategies to Reduce Donut Hole Costs

Ask your doctor whether a generic version of your medication exists. Generics cost less and count the same way toward your spending thresholds, so switching can lower both your when ready costs and the amount you need to spend to exit the donut hole.

Check whether your medications have manufacturer discount programs. Many pharmaceutical companies offer coupons or patient information programs that reduce what you pay in the donut hole. These discounts count toward your out-of-pocket threshold, so they help you exit the gap faster. Your pharmacist or your plan can tell you which drugs have discounts available.

Request a formulary exception if your doctor prescribes a drug that is not on your plan's preferred list. Sometimes a non-preferred drug costs less than the preferred alternative, or your doctor may have a medical reason for the choice. An exception can lower your costs or move you to a lower copay tier.

Review your plan each year during the annual enrollment period (October 15 to December 7). A different plan may have a lower initial coverage limit, higher manufacturer discounts, or a formulary that better matches your medications. Switching plans can sometimes help you avoid the donut hole or spend less time in it.

How Catastrophic Coverage Works After the Donut Hole

Once you exit the donut hole by reaching the out-of-pocket threshold, you enter catastrophic coverage. At this stage, your plan covers most of the cost of your medications, and you pay only a small copay (usually $3.95 to $9.85 for generic drugs and $9.85 to $24.70 for brand-name drugs in 2024, though these amounts change yearly).

Catastrophic coverage continues for the rest of the calendar year. On January 1, the cycle resets and you start over in the initial coverage stage with a new copay, even if you were in catastrophic coverage on December 31.

Your Part D plan will notify you when you enter catastrophic coverage. You do not need to do anything — the change happens automatically once the plan's records show you have reached the threshold.

Tracking Your Donut Hole Status During the Year

Your Part D plan is required to send you a written notice when you enter the donut hole. This notice will tell you the date you entered the gap and remind you of the out-of-pocket threshold you need to reach to exit it.

You can also track your spending yourself by reviewing your monthly plan statements or logging into your plan's website or app. These tools show your year-to-date spending and how much more you need to spend to reach each threshold. Checking regularly helps you anticipate when you might enter or exit the donut hole.

If you think your plan made an error in calculating your spending, contact your plan's customer service. Bring copies of your receipts and pharmacy records. Plans must correct errors within 30 days of your request.

Frequently Asked Questions

Does the donut hole explore to all Medicare Part D plans?

Yes, all standard Part D plans have a donut hole. However, some plans offer coverage in the donut hole as an extra benefit, which means you pay less than the full retail price while in the gap. Compare plan details during enrollment to see which plans offer donut hole coverage.

What happens if I switch pharmacies while in the donut hole?

Your spending follows you, not the pharmacy. All your prescriptions filled through your Part D plan count toward the same thresholds regardless of which pharmacy you use. However, prices can vary between pharmacies, so it may be worth comparing costs if you are in the donut hole.

Can I use a GoodRx coupon or similar discount card in the donut hole?

You can use a discount card, but it may not count toward your out-of-pocket threshold. If you use a discount card instead of your Part D coverage, the plan does not count that spending. Ask your pharmacist whether using your Part D plan or a discount card costs less for each prescription, and whether the spending counts toward exiting the donut hole.

Do I pay the donut hole costs if I have Medicaid too?

If you have both Medicare and Medicaid (called dual coverage), Medicaid may cover costs in the donut hole. The amount depends on your state's Medicaid rules. Contact your state Medicaid office to learn what coverage you have during the donut hole.

What if I cannot afford my medications in the donut hole?

Talk to your doctor or pharmacist about lower-cost alternatives, ask about manufacturer information programs, or contact your plan's customer service to discuss your options. Some plans have emergency programs or can help you find resources. Your local Area Agency on Aging may also know of programs that help with medication costs.