The donut hole is a gap in Medicare Part D coverage where you pay the full cost of prescription drugs after you and your plan have spent a certain amount

Once your total drug costs reach a threshold set by Medicare each year, your coverage temporarily stops. You then pay the full price for prescriptions until your out-of-pocket spending reaches a second, higher threshold. At that point, catastrophic coverage kicks in and you pay a smaller percentage again. The donut hole exists in every Part D plan, though the exact dollar amounts and your costs within it vary by plan and by year.

The donut hole was built into Part D when the program started in 2006. Congress has gradually reduced how much you pay while in the gap — in the early years, you paid nearly the full price — but the gap itself remains. Understanding when you enter it and what you will owe is essential to budgeting for medications and deciding which plan to choose.

Key Takeaways

  • The donut hole begins when your plan's total drug costs (what you and the plan together have paid) hit a certain amount, which changes each year.
  • While in the donut hole, you pay a percentage of the drug cost, not a flat copay, and this percentage is higher than your regular copay.
  • You exit the donut hole once your out-of-pocket spending reaches catastrophic coverage, after which you pay only a small copay or coinsurance.
  • Brand-name drugs receive a manufacturer discount while you are in the donut hole, which lowers what you pay but counts toward your out-of-pocket total.
  • Some people never reach the donut hole because their annual drug costs stay below the entry threshold, while others enter it within the first few months.

How the donut hole threshold works each year

Medicare sets a new donut hole entry point every January. In 2024, for example, the threshold was $5,850 in total drug costs. This means once you and your plan have paid a combined $5,850 for covered drugs, you enter the gap. The exact figure changes annually based on inflation and other factors, so you should check your plan's materials or Medicare.gov each fall when you review your coverage for the coming year.

The threshold applies to covered drugs only. If your plan does not cover a particular medication, those costs do not count toward the $5,850. Similarly, if you use a non-covered drug and pay out of pocket, that spending does not count either. Only drugs your plan covers and processes through your pharmacy count toward the threshold.

Your plan sends you a notice when you enter the donut hole. Some plans also send alerts as you approach it. If you do not receive notice, you can call your plan or log into your online account to see your year-to-date spending and how close you are to the threshold.

What you pay inside the donut hole

Inside the donut hole, you do not pay a straightforward copay. Instead, you pay a percentage of the drug's cost, called coinsurance. The exact percentage depends on the drug and your plan, but it is typically 25 percent of the cost for most medications. For some drugs, you may pay a different percentage — your plan's formulary (the list of covered drugs) will show the breakdown.

Brand-name drugs come with a manufacturer discount while you are in the donut hole. The manufacturer pays part of the cost, which reduces what you owe at the pharmacy. However, that discount counts toward your out-of-pocket spending total, so it helps you exit the donut hole faster even though you do not see the full amount in your wallet.

Generic drugs typically cost less in the donut hole than brand-name drugs, so switching to a generic version of a medication you take can lower your costs significantly during this period. Ask your doctor or pharmacist whether a generic alternative exists for any drug you use regularly.

When you exit the donut hole and enter catastrophic coverage

You leave the donut hole once your out-of-pocket spending reaches the catastrophic coverage threshold. In 2024, that threshold was $7,050. Once you hit that number, your plan covers most of the cost again, and you pay only a small copay or coinsurance for the rest of the year.

Your out-of-pocket total includes what you pay at the pharmacy, plus the manufacturer discount on brand-name drugs (even though you do not pay that part directly). It does not include what your plan pays. This distinction matters: you might think you have spent $6,000 out of pocket, but if manufacturer discounts added another $500 to your total, you are actually at $6,500 toward the catastrophic threshold.

Once you reach catastrophic coverage, you typically pay 5 percent coinsurance for most drugs, though the exact amount depends on your plan. This is much lower than the 25 percent you paid in the donut hole, so your monthly medication costs drop sharply.

How to avoid or minimize time in the donut hole

The most direct way to reduce donut hole costs is to use generic drugs whenever possible. Generics cost significantly less than brand-name medications, so switching can keep your total spending below the entry threshold or move you through the gap faster. Talk to your prescriber before your pharmacy fills a prescription to see whether a generic is available.

Some people reach the donut hole every year because their medications are expensive or they take many drugs. If that describes you, compare Part D plans during the annual enrollment period (October 15 to December 7 each year). Plans differ in their formularies, copay amounts, and deductibles. A plan with a higher monthly premium might have lower copays in the donut hole, which could save you money overall if you know you will enter the gap.

If your income is low, you may be may be able to access for the Low-Income Subsidy (also called Extra Help), which reduces or eliminates donut hole costs. You can check whether you may have access to by contacting Social Security or visiting Medicare.gov. The income limits change each year, so even if you were not may be able to access before, it is worth checking again.

Some manufacturers offer patient information programs that help pay for their drugs if you meet income requirements. Your pharmacist or the drug manufacturer's website can tell you whether such a program exists for a medication you take.

The difference between total drug costs and out-of-pocket spending

This distinction confuses many people, so it is worth understanding clearly. Total drug costs include what you pay plus what your insurance plan pays. Out-of-pocket spending includes only what you pay, plus manufacturer discounts on brand-name drugs. Your plan's payments do not count toward either threshold.

Example: Your blood pressure medication costs $200 per month. Your plan's copay is $15. You pay $15; your plan pays $185. The total drug cost is $200 (this counts toward the $5,850 donut hole entry threshold). Your out-of-pocket cost is $15 (this counts toward the $7,050 catastrophic threshold). Once you enter the donut hole and owe 25 percent coinsurance, you pay $50 per month instead of $15, and your out-of-pocket spending jumps.

Frequently Asked Questions

Can I use a coupon or discount card to lower my costs in the donut hole?

You can use manufacturer coupons or discount cards, but they do not count toward your out-of-pocket total. This means a coupon might lower what you pay at the pharmacy, but it does not help you exit the donut hole faster. Some plans prohibit using coupons alongside insurance, so check with your plan before trying one.

Does the donut hole reset every year?

Yes. On January 1 of each year, your spending counter resets to zero, and the donut hole entry threshold starts fresh. If you entered the donut hole in November, you exit it when you hit the catastrophic threshold, but on January 1 you start over at the beginning of the coverage phases.

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

Your out-of-pocket spending total follows you regardless of which pharmacy you use. All pharmacies report to your plan, so switching pharmacies does not reset your progress toward the catastrophic threshold. However, different pharmacies may have different prices for the same drug, so comparing prices before you fill a prescription can save money.

If I have both Medicare and Medicaid, does the donut hole still explore?

If you have both programs (called dual coverage), Medicaid typically covers your costs in the donut hole, so you may not pay the full coinsurance. The exact coverage depends on your state's Medicaid rules. Contact your state Medicaid office or your plan to understand what you owe.

Can my doctor prescribe a higher dose so I fill fewer prescriptions and spend less?

Some people ask their doctor to prescribe a higher dose and split the pill to reduce the number of fills. This sometimes works, but it is not always safe or legal depending on the drug. Talk to your doctor and pharmacist before trying this approach — they can tell you whether it is appropriate for your medications.