What is a Coverage Gap?

Medicare drug plans may have a "coverage gap," which is sometimes called the "donut hole."

Prior to 2021, the coverage gap meant that after you and your plan have spent a certain amount of money for covered drugs (the initial coverage limit), and you had to pay out-of-pocket all costs for your drugs while you are in the "gap."

Starting in the 2011 Medicare Part D plan year, a discount or coinsurance (cost-sharing) was introduced to reduce the cost of generic and brand-name prescription drugs purchased by non-LIS Medicare beneficiaries once they entered the Coverage Gap (or Donut Hole / Doughnut Hole) portion of your stand-alone Medicare Part D prescription drug plan (PDP) (or Medicare Advantage plan that included prescription drug coverage (MAPD)). Over the years, the Donut Hole discount increased providing more coverage formulary drug purchases in Donut Hole.

Although we say that the Donut Hole "closed" in 2020, because you receive a 75% discount on all formulary drugs purchased in the Donut Hole (paying the same 25% cost-sharing as the standard Medicare Part D plan coverage before the Donut Hole), the Donut Hole did not go away and the Coverage Gap remains the third phase of your Medicare Part D coverage.

Once you've reached your plan's out-of-pocket limit, you will have "catastrophic coverage." This means that you will not have any out-of-pocket costs for formulary drug purchases for the rest of the calendar year.