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What is a Coverage Gap?

 Medicare drug plans may have a "coverage gap," which is sometimes called the "donut hole." A coverage gap means that after you and your plan have spent a certain amount of money for covered drugs (no more than $2,400), you have to pay out-of-pocket all costs for your drugs while you are in the "gap." The most you have to pay out-of-pocket in the coverage gap is $3,051.25. This amount doesn't include your plan's monthly Premium that you must continue to pay even while you are in the coverage gap. Once you've reached your plan's out-of-pocket limit, you will have "catastrophic coverage." This means that you only pay a Coinsurance amount (like 5% of the drug cost) or a Copayment (like $2.15 or $5.35 for each prescription) for the rest of the calendar year.
Note: If you get extra help paying your drug costs, you won't have a coverage gap. However, you will probably have to pay a small copayment or coinsurance amount.

The example below shows calendar year costs for covered drugs in a plan that meets Medicare's standards in 2007:

Mr. Jones joins the ABC Prescription Drug Plan. His coverage begins on January 1, 2007. He pays the plan a monthly premium throughout the year, even during his coverage gap. He doesn't get "extra help."
1. Yearly
       Deductible		 2. Copayment/
       Coinsurance		 3. Coverage Gap
       ("donut hole")		 4. Catastrophic
       Coverage
Mr. Jones pays the first $265 of his drug costs. Mr. Jones pays a copayment or coinsurance amount, and his plan pays its share for each drug until his total drug costs (including his deductible) reach $2,400. Mr. Jones pays everything until he has spent $3,850 out-of-pocket. (This includes his yearly deductible, coinsurance and copays, and $3,051.25 while in the coverage gap. This does not include the drug plan's premium.) Even though he is paying everything, he gets a discount because he belongs to a Medicare drug plan. Once Mr. Jones has spent $3,850 out-of-pocket for the year, his coverage gap ends. He only pays a small coinsurance (like 5%) or a small copayment (like $2.15 or $5.35) for each prescription until the end of the year.


(Primary Source: Centers for Medicare and Medicaid Services - Medicare and You Handbook. This content may have been enhanced by Q1Group LLC to include further examples, explanations, and links.)

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  • Medicare MSA Plans do not cover prescription drugs. If you join a Medicare MSA Plan, you can also join any separate (stand-alone) Medicare Part D prescription drug plan
  • There are additional restrictions to join an MSA plan, and enrollment is generally for a full calendar year unless you meet certain exceptions. Those who disenroll during the calendar year will owe a portion of the account deposit back to the plan. Contact the plan provider for additional information.
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  • Medicare beneficiaries can file a complaint with the Centers for Medicare & Medicaid Services by calling 1-800-MEDICARE 24 hours a day/7 days or using the medicare.gov site. Beneficiaries can appoint a representative by submitting CMS Form-1696.
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