The Donut Hole (or Doughnut Hole) is 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 (previous to 2011) 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.

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).

The Donut Hole or Coverage Gap is actually the third part or phase of your Medicare Part D prescription drug coverage and you only reach this phase when your drug spending exceeds a certain point.

How the Donut Hole functions today:
An overview of standard Medicare Part D coverage

As a reminder, 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 standard Initial Deductible can change each year.  In 2020, the Initial Deductible is $435.  In 2019 it was $415, in 2018 - $405, in 2017 - $400, and in 2016, the Initial Deductible was $360.

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 2020, the Initial Coverage Limit  (ICL) or Donut Hole entry point begins when your retail drug costs exceed $4,020, in 2019, the ICL was $3,820, in 2018 - $3,750, in 2017 - $3,700, in 2016 - $3,310, and in 2015, the Donut Hole entry point began when retail drug costs exceeded $2,960.

Bottom Line:  If the retail cost of your medications is over $335 per month, you will enter the 2020 Donut Hole.

A note on using high-cost medications
If you use a single medication with a retail cost of over $4,020, 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, 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.

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).  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 were responsible for 100% of your drug costs, unless your Medicare plan included some Donut Hole coverage.  Since 2011, you receive a discount on your Medicare Part D plan purchases while in the Donut Hole.

The Donut Hole discount is 75% for all formulary drugs (you pay 25%).  For more information about the Donut Hole discount, you can click here to see how the Donut Hole discount has increased over the years. The Donut Hole is considered "closed" beginning in 2020 because the donut hole discount for all formulary drugs is 75%, you pay 25% and 25% is the CMS standard cost-sharing for the Initial Coverage phase.  So according to the CMS standard, you pay the same amount in the Donut Hole (Coverage Gap) as you do during your normal Part D coverage (Initial Coverage Phase).

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 2020 is $6,350.  So if you have spent $6,350 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 2020 is $6,350, in 2019 TrOOP was $5,100, in 2018 - $5,000, in 2017 - $4,950, in 2016 - $4,850, and in 2015 - $4,700.

A note on TrOOP vs. Retail Cost: Without considering your Donut Hole discount, your 2020 TrOOP (true or total out-of-pocket costs) should equate to about $9,039 in retail drug costs.  But with the Donut Hole discount, Medicare estimates that your retail drug cost should be around $9,720 before exiting the 2020 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 $810, you probably will spend your way through the 2020 Donut Hole and enter your Medicare Part D plan's 2020 Catastrophic Coverage phase.

Once you enter the 2020 Catastrophic Coverage portion of your Medicare Part D plan, you pay the greater of 5% or $3.60 for generic drugs (or preferred drugs that are multi-source drugs) or the greater of 5% or $8.95 for all other drugs (such as brand-name medications).

For example, if you purchase a brand-name medication in the 2020 Catastrophic Coverage phase that has a retail cost of $100, you will pay $8.95 (since this fixed cost of $8.95 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.

Help with planning for your 2020 monthly costs

To help you visualize the phases of your Medicare Part D prescription drug plan coverage, we have a monthly drug cost calculator or 2020 PDP-Planner online illustrating the changes in your monthly estimated costs based on the established 2020 standard Medicare Part D plan limits mentioned above.

We also have several examples online to help you get started with our 2020 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.

Here is how example formulary drug purchases are calculated throughout your 2020 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 $8.95 for brand drugs whatever is higher or 5% of retail or $3.60 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 history: The Donut Hole 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.

A view into the future and the closing of the Donut Hole

In 2020, the Coverage Gap will be considered "closed" when both generic and brand-name drugs will cost Medicare Part D plan members 25% of the retail drug price (you receive a 75% discount and so you will pay $250 for a medication with a $1,000 retail cost) until reaching Catastrophic Coverage.