There are four possible parts to your Medicare drug plan coverage: (1) the Initial Deductible, (2) the Initial Coverage phase, (3) the Coverage Gap or Donut Hole, and (4) Catastrophic Coverage (all four parts are explained in more detail below).

You move through the four different parts or phases of your Medicare drug coverage as you purchase prescriptions covered by your drug plan.

You reach the Donut Hole or Coverage Gap phase of your Medicare Part D prescription drug coverage if (or when) the retail cost of your formulary drug purchases exceeds the plan's Initial Coverage Limit.

For example, if you purchase formulary drugs with a retail value of over $4,660 in 2023 ($5,030 in 2024), you will exceed your plan's Initial Coverage Limit and enter Part 3 of your drug coverage: the Coverage Gap or Donut Hole.

If you reach the Donut Hole, you will pay 25% of the retail cost for any of your Medicare plan's formulary drugs.

2006 through 2020: Over the past years, your costs in the Coverage Gap or Donut Hole have changed.

First, from 2006 through 2010, the "Donut Hole" was a term used to describe a gap in Medicare Part D prescription drug plan coverage or Medicare Advantage plan coverage during which the Medicare plan member was 100% responsible for the cost of their prescription drugs — unless their Medicare plan provided some brand-name or generic drug coverage through the Donut Hole - in essence, the pre-2011 Coverage Gap acted like a second deductible where you paid 100% of your drug costs.  (See below for more information and diagram).

Then starting in 2011, Medicare Part D prescription drug plans and the brand-name pharmaceutical drug manufacturers began to share a portion of your medication expenses while you are in the Donut Hole (giving you what we now call the Donut Hole discount).  Back in 2011, the discount you received when you reached the Donut Hole was only 7% off the price of generics and 50% off the cost of brand-name drugs.  Each year, the discount increased saving you more money in the Donut Hole.

In 2020, the Donut Hole discount increased to 75% so that you only pay 25% of the retail cost for any of your formulary drugs.  At this time, we began to say that the Donut Hole was "closed" because you (theoretically) pay the same as you would during the Initial Coverage phase (assuming a standard Medicare drug plan coverage of 25% of the retail cost).  However, although we say this phase is "closed", the Coverage Gap still remains the third phase of your Medicare Part D coverage.

In fact, since no Medicare Part D drug plans have the theoretical standard 25% cost-sharing of the Donut Hole,you will find that, if you enter the Coverage Gap (Donut Hole), the cost of your formulary medications can increase, decrease, or stay the same - depending on your Medicare plan, your cost-sharing, and the drug's retail price - so your drug costs can actually change in this third phase.

An overview of today's standard Medicare Part D coverage

As noted, your Medicare Part D plan coverage has four separate parts or phases (if your Medicare Part D plan has a $0 initial deductible, you will skip the first or deductible phase and begin coverage directly in the second or Initial Coverage Phase).

Part 1 of your Drug Plan

The Initial Deductible Phase (unless your plan has a $0 deductible and you skip directly to the Initial Coverage Phase)

If your Medicare Part D plan has an Initial Deductible, you will usually pay 100% for your medications and the amount you pay will count toward the Donut Hole.  However, some Medicare Part D prescription drug plans with an Initial Deductible are now covering some lower-costing medications in the Initial Deductible.  So, whether you or your plan pays for your medications in the Initial Deductible, the retail value of your medications counts toward your Initial Coverage Limit (see next section) and determines when you enter into the Donut Hole or Coverage Gap.

Important:  What you spend in the Initial Deductible counts toward going into the Donut Hole and exiting the Donut Hole and entering the Catastrophic Coverage phase.

The Initial Deductible can change each year.  In 2023, the standard Initial Deductible is $505 ($545 in 2024).

Part 2 of your Drug Plan

The Initial Coverage Phase

After the Initial Deductible (if any), you will continue into your Initial Coverage Phase where your Medicare Part D plan covers a portion of your prescription costs and you pay some cost-sharing (co-payment or co-insurance).  You will leave your Initial Coverage Phase and enter the Donut Hole or Coverage Gap when your retail medication costs reach a certain amount - your Initial Coverage Limit.

Important:  You enter the Donut Hole based on the retail cost of your formulary drugs - not the amount of what you paid for your drugs, but what you spend plus what your Medicare Part D plan pays.  For instance, if you buy a medication with a retail value of $100 for a $30 co-payment, the $100 retail value counts toward your Initial Coverage Limit or Donut Hole entry point.

The Initial Coverage Limit can change each year.  In 2023, the Initial Coverage Limit (ICL) or Donut Hole entry point begins when your retail drug costs exceed $4,660 ($5,030 in 2024).

Bottom Line:  If the retail cost of your medications is over $389 per month, you will enter the 2023 Donut Hole.

A note on using high-cost medications:  If you use a single medication with a retail cost of over $4,430, you will enter the Donut Hole with your first purchase.  If you use an expensive medication on an infrequent basis, you may find that one large drug purchase (or multiple drug purchases in a single month) can actually move you from the Initial Coverage Phase (or Initial Deductible) into the Donut Hole.

Important:  The only way to know exactly when you will enter or leave the donut hole is by watching your monthly Medicare Part D plan's Explanation of Benefits statement carefully (you received this printed form in the mail) or you can contact your Medicare Part D plan and ask the Member Services representative where you are relative to the plan's Coverage Gap.

Part 3 of your Drug Plan

The Coverage Gap or Donut Hole

The Donut Hole begins when you exceed your plan's Initial Coverage Limit (or ICL), and now with the 75% Donut Hole discount you pay 25% of retail for all formulary drugs.

For more information about the Donut Hole discount, you can click here to see how the Donut Hole discount has increased over the years.

Part 4 of your Drug Plan

The Catastrophic Coverage Phase

You will stay in the Coverage Gap or Donut Hole phase until your out-of-pocket costs (also called TrOOP or total drug spend) reaches a certain limit. The TrOOP limit in 2023 is $7,400.  So if you have spent $7,400 ($8,000 in 2024) on Medicare Part D drugs (not including monthly Medicare plan premiums), you will exit the Donut Hole and enter the Catastrophic Coverage phase.

TrOOP is the total of what you pay during the Initial Deductible (if you have one) plus what you personally pay in the Initial Coverage Phase, before the Donut Hole, plus what you pay in the Donut Hole (and plus you get credit for the 70% brand-name discount paid by the drug manufacturer in the donut hole - for instance, if in the Donut Hole you buy a brand-name drug with a $100 retail value, you pay the $25 discounted price, but actually get credit for $95 toward meeting your TrOOP limit).

Your TrOOP limit can change every year:  As mentioned above, the TrOOP limit in 2023 is $7,400, in 2022 TrOOP was $7,050, in 2021 TrOOP was $6,550, in 2020 TrOOP was $6,350, and in 2019 - $5,100.

A note on TrOOP vs. Retail Cost

Without considering your Donut Hole discount, your 2023 TrOOP (true or total out-of-pocket costs) should equate to about $10,517 in retail drug costs.  But with the Donut Hole discount, Medicare estimates that your retail drug cost should be around $11,207 before exiting the 2023 Donut Hole.  The estimate is based on historic brand-name and generic drug purchases while in the Donut Hole.

Bottom Line:  If your monthly retail drug costs are somewhere around $934, you probably will spend your way through the 2023 Donut Hole and enter your Medicare Part D plan's 2023 Catastrophic Coverage phase.

Once you enter the 2023 Catastrophic Coverage portion of your Medicare Part D plan, you pay the greater of 5% or $4.15 for generic drugs (or preferred drugs that are multi-source drugs) or the greater of 5% or $10.35 for all other drugs (such as brand-name medications).

For example, if you purchase a brand-name medication in the 2023 Catastrophic Coverage phase that has a retail cost of $100, you will pay $10.35 (since this fixed cost of $10.35 is higher than $5.00 ($100 * 5%).

Reminder:  No matter where you are at the end of the plan year, your Medicare Part D plan coverage ends on December 31st and the whole process begins again on January 1st of the next year.

Need help planning for your annual monthly drug spending?

To help you visualize the phases of your Medicare Part D prescription drug plan coverage, we have a monthly drug cost calculator or 2023 PDP-Planner online illustrating the changes in your monthly estimated costs based on the established 2023 standard Medicare Part D plan limits mentioned above.

We also have several examples online to help you get started with our 2023 PDP-Planner tool. You can click here for an example of a Medicare beneficiary with relatively high monthly prescription drug costs (retail prescription drug cost of $800 per month) and then change the monthly drug cost to whatever you wish.

Below is a chart showing how example formulary drug purchases are calculated throughout your 2023 Medicare Part D plan (using the CMS defined standard benefit Medicare Part D plan as a guide).


* 25% co-pay or cost-sharing
** 75% Brand-name Discount
*** 75% Generic Discount
**** you pay 5% of retail or $10.35 in 2023 for brand drugs whatever is higher or 5% of retail or $4.15 in 2023 for generic or multi-source drugs whatever is higher (80% paid by Medicare, 15% paid by Medicare plan, and around 5% by plan member)
"n/a" - "not applicable" to this phase or part of your Medicare Part D plan coverage

A bit of Coverage Gap history: The Donut Hole from 2006 to 2010

Before 2011, the Medicare Part D Coverage Gap or Donut Hole was actually similar to a second deductible in an insurance policy where, after receiving a certain level of coverage, you were, once again, responsible for paying your own drug coverage until you reached the Catastrophic Coverage portion of your Medicare Part D plan or Medicare Advantage plan that included drug coverage (MAPD).



However, with the introduction of the Donut Hole discount in 2011, you are now responsible for only a portion of your own drug coverage in the Donut Hole.

The closing of the Donut Hole

In 2020, the Coverage Gap was considered "closed" with both generic and brand-name formulary drugs costing Medicare Part D plan members 25% of the retail drug price (you receive a 75% discount on all formulary drugs) until reaching Catastrophic Coverage.

But although we now say that the Donut Hole is "closed", the Coverage Gap remains the third phase of your Medicare Part D coverage, and if you enter the Coverage Gap (Donut Hole), the cost of your formulary medications can actually increase, decrease, or stay the same - depending on your Medicare plan, your cost-sharing, and the drug's retail price.