How does this Donut Hole really work?
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The Coverage Gap or Donut Hole (or Doughnut Hole) has caused a considerable amount of confusion for many people when they suddenly are required to pay a higher price (or before 2011, the full price) for their prescription medications. The following brief overview is based on the 2024 Medicare Standard Benefit Plan Model. For more information, please click here to see the Donut Hole section of our Frequently Asked Questions (or FAQs).
Quick Overview
Here is a quick overview of the Donut Hole or Coverage Gap.- According to the Centers for Medicare and Medicaid Services (CMS) the Standard Medicare Part D Prescription Drug Plan, the Donut Hole phase of your Medicare Part D coverage
begins when
your total retail drug costs reach $5,030. (In past coverage years, some Medicare Part D plans have implemented a different
Initial Coverage Limit and have begun the Donut Hole
phase a little earlier - perhaps at a total retail drug spending of $1,800.)
- Please note, this $5,030 is the total retail cost of the covered medications, not what you spend personally at the pharmacy.
As a Medicare Part D beneficiary, you will pay only a portion of the $5,030 and your Part D plan pays a portion.
Your total retail cost of prescription medications is calculated from your Medicare Part D plan's negotiated retail drug price - and every Medicare Part D plan can have a different negotiated retail drug price.
So, it is possible that you may reach the Donut Hole a little earlier or later than someone else who uses the exact same prescription medications, but this other person has enrolled
in a prescription drug plan from another Medicare Part D plan provider.
- As a note, in the CMS model Medicare Part D plan, a beneficiary; like yourself, pays the first $545 dollars as an initial deductible and then is responsible for paying
25% of the next $4,485, for a total out-of-pocket medication costs (or true out-of-pocket costs -— TrOOP)
of $1,666.25 (excluding your monthly plan premiums).
- Again, following the CMS standard model Medicare Part D plan, when you reach the Donut Hole, your Medicare Part D plan will have paid the difference between the negotiated retail cost of all your drug purchases and your out of pocket cost or $3,363.75.
- However, most people simply say that you enter the Donut Hole phase of your Medicare Part D plan at the end of your Initial Coverage phase or when your
reach your Medicare Part D plan's Initial Coverage Limit (again, around $5,030).
- With changes in the Medicare law, a $250 Donut Hole Rebate program was implemented in 2010. Anyone who reached the 2010 Donut Hole was automatically mailed a check for $250.
Click here to read some frequently asked questions about the 2010 Donut Hole rebate.
- The 2011 Donut Hole marked the beginning of an effort at closing the Donut Hole. In 2011, anyone reaching the Donut Hole received a 50%
discount on brand-name formulary drugs and a 7% discount on all generic formulary medications.
- In 2024, anyone reaching the Donut Hole will receive a 75% discount on brand-name formulary drugs and
a 75% discount on all generic formulary medications. So for your brand-name drug purchases, you will pay only
25% of the retail cost, but receive 95% credit toward meeting your
Donut Hole exit point or TrOOP. For generic drug purchases, you pay 25% of the retail cost and receive the same
25% credit toward TrOOP.
Click here if you would like to read more about the Donut Hole drug discount program.
- You will stay in the Donut Hole until your TrOOP (True Out-of-Pocket) costs reach $8,000.
- Still have a question on the Donut Hole basics or did we miss something about the Donut Hole? Click here and let us know.
What about Medicare Part D prescription drug plans that vary from the CMS Standard Model Plan?
Medicare Part D Prescription Drug Plans that have tiered Co-Payment instead of the 25% Co-Insurance and no initial $545 deductible offer only a slight variation of this calculation - however, the Coverage Gap or Donut Hole still begins when total retail costs of covered medications reach $5,030 (or perhaps lower depending on your Medicare Part D prescription drug plan's Initial Coverage Limit).How do you keep track of the retail costs?
You do not need to keep track of your retail drug costs or retail drug spending. Your Medicare Part D plan provider will gather together all of the retail costs and watch where you are with respect to the Donut Hole phase of your prescription drug plan. Each month you will receive a Explanation of Benefits (EOB) statement from your Medicare Part D plan and this monthly statement should provide you with an overview of your spending as you approach the $5,030 mark (the place where you enter into the Donut Hole or Coverage Gap). If you have trouble understanding the Explanation of Benefits letter that you receive, please be sure to telephone the Member Services department of your Medicare Part D plan for assistance. The toll-free number to your Medicare Part D plan is on the back of your Member ID card.What about medications purchased outside the US?
I use medications not covered by my Medicare Part D plan or sometimes I buy my medications from outside of the country (for instance, in Canada or Mexico). Are these prescription drug expenses included in the $5,030 or any other Part D calculation?No. Any medications not included on your Medicare Part D plan's formulary or drug list (also known as: out of formulary drugs) or drugs that you purchased outside of the United States fall outside of your Medicare Part D coverage and are not included in the $5,030 or any other Part D calculation. If you use a medication that is not included on your formulary, you can ask your Medicare Part D plan for a formulary exception or coverage determination, whereby your non-formulary drug would be included on your own personal formulary. If your Medicare Part D plan denies your request for a coverage determination, you can appeal the denial - several times. Be sure to ask your Medicare Part D plan for details on the formulary exception and appeals process.
How long do I remain in the Coverage Gap or Donut Hole?
Medicare Part D beneficiaries remain in the Donut Hole until their true out of pocket (or TrOOP) costs exceed $8,000. The $8,000 does not include the portion of your prescription expenses paid by the insurance carrier or your monthly Medicare Part D plan premiums - TrOOP only includes the amount you actually spent yourself. Since 2011, TrOOP also includes the 70% portion of the donut hole discount on brand-name drug purchases. This is because the 70% discount was paid on your behalf by the drug manufacturer, not your Medicare Part D plan (which would be considered plan coverage)What happens after I leave the Coverage Gap or Donut Hole?
After leaving the Donut Hole phase of a prescription drug plan, the Medicare Part D beneficiary enters into the last phase of the Medicare Part D program or Catastrophic Coverage. From this point on, the Medicare Part D beneficiary will not have any out-of-pocket costs for formulary drug purchases through the end of the year.- Try out your own Doughnut Hole example with our Donut Hole Calculator