The Medicare Part D Coverage Gap or Donut Hole is actually similar to a second deductible in an insurance policy where you are responsible for paying your own coverage.  With the introduction of the Donut Hole discount in 2011, you are now responsible for only a portion of your own drug coverage.  In 2020, the Coverage Gap will be considered "closed" when both generic and brand-name drugs will cost beneficiaries 25% of retail.

As a reminder, your Medicare Part D plan has four separate parts or phases:
(1) 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 are now covering your generic 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 entering into the Donut Hole or Coverage Gap.

(2) 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 (not the amount of what you paid for your drugs, but the retail value of the medications you purchased - 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).

The Initial Coverage Limit can change each year.  In 2014, the Donut Hole entry point is when a person's total retail drug costs exceed $2,850 - in 2015, the Initial Coverage Limit or Donut Hole entry point is when retail drug costs exceed $2,960.

Bottom Line:  If the retail cost of your medications is over $247 per month, you will enter the 2015 Donut Hole.

Please note, if you use an expensive medication, you might find that one large drug purchase (or multiple drug purchases in a single month) can actually move you from the Initial Coverage Phase into the Donut Hole, so the only way to know exactly when you will enter or leave the doughnut 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.

(3) The Coverage Gap or Donut Hole:  As mentioned, this is the portion of your Medicare Part D coverage where you pay a larger percentage of the retail drug cost.  From 2006 through 2010, you might be responsible for 100% of your drug costs, unless your Medicare plan included some Donut Hole coverage.  Since 2011, you will receive some discount on your Medicare Part D plan purchases while in the Donut Hole.

The Donut Hole discount for 2015 is 45% for brand-name drugs and 35% for generic drugs.  For more information about the Donut Hole discount, you can click here to see how the Donut Hole discount increases over the next few years until, in 2020, the discount reaches 75% and the Donut Hole is considered “closed”.

(4) The Catastrophic Coverage Phase:  You will stay in the Donut Hole phase until your out-of-pocket costs (also called TrOOP or total drug spend) reaches a certain level. The TrOOP level in 2015 is $4,700.  So if you have spent $4,700 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 50% brand-name discount paid by the drug manufacturer in the donut hole - for instance, if in the 2015 Donut Hole you buy a brand-name drug with a $100 retail value, you pay the $45 discounted price, but actually get credit for $95.00 toward meeting your TrOOP limit).

The TrOOP limit can change every year. For example, the TrOOP limit in 2014 is $4,550 - and TrOOP in 2015 is $4,700.
 
Once you enter the Catastrophic Coverage portion of your Medicare Part D plan, you pay the greater of 5% or $2.65 for generic drugs (or preferred drug that is a multi-source drug) or the greater of 5% or $6.60 for all other drugs (such as brand-name medications) in 2015.  For example, if you purchase a brand-name medication in the 2015 Catastrophic Coverage phase that has a retail cost of $100, you will pay $6.60 (since this fixed cost of $6.60 is higher than $5.00 ($100 * 5%).


* 25% co-pay
** 55% Discount
*** 35% Discount
**** approx. 5% of retail or $6.60 for brand drugs, whichever is higher

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. To help you visualize the phases of your Medicare Part D prescription drug plan coverage, we have a Donut Hole Calculator or 2015 PDP-Planner online illustrating the changes in your monthly estimated costs based on the established 2015 plan limits mentioned above.

We also have several examples online to help you get started with our 2015 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.