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Medicare Prescription Drug (Part D) Coverage Gap (also known as the Part D Donut Hole)

What is a Medicare Prescription Drug (Part D) Plan?

Medicare Prescription Drug (Part D) Coverage Gap

Medicare Part D helps people pay for their prescription drugs. Part D plans are offered by private insurance companies that are approved by Medicare. This coverage is optional and available to anyone enrolled in Original Medicare and most Medicare Advantage plans. The drug benefits work the same in either plan.
If someone chooses to enroll in a Part D plan, they will pay a monthly premium and copay for covered prescription drugs. Many plans also have an annual deductible that they must pay before their coverage begins. Each plan varies in costs, but all Medicare prescription drug plans must provide at least the standard level of coverage set by the Medicare program.

What is the Medicare Part D Coverage Gap (Part D Donut Hole)?

This is a phase of Part D Prescription Drug coverage after the end of an initial coverage period. Once someone falls into the donut hole, prescription prices increase.

This is How the Donut Hole Works

A person falls into the donut hole when their total drug costs reach a certain limit. Another important aspect to know about the coverage gap is that prescription drugs tend to be more expensive than what a person would normally spend. Although, there are in fact federally funded discounts that help people pay for their drugs during the donut hole period. For example, there could be a 65% discount for name-brand drugs that are paid by the federal government and manufacturer. In this scenario, a person would then pay the other 35% of drug costs for name brand drugs. When it comes to generic drugs, the government pays for 56% of the costs, and the person pays for 44% of the costs.

How Do People Leave the Donut Hole?

For most Part D plans, after a person pays $5,000 out-of-pocket costs for covered drugs, the person then leaves the donut hole and is moved to catastrophic coverage.

What is Catastrophic Coverage?

During the Catastrophic Coverage period, a person will pay much lower copays and/or coinsurance for their prescription drugs for the rest of the year. Here are the out-of-pocket costs that can be incurred that will cause people to reach the catastrophic coverage level:

  1. Deductibles
  2. Payment during the initial coverage period
  3. Full cost of name-brand drugs (including discounts) purchased during the coverage gap
  4. Amounts paid by others that helped pay (family, charities, etc.)
  5. Amounts paid by AIDS Drug Assistance Programs, State Pharmaceutical Assistant Programs (SPAPs) and the Indian Health Service

The costs that do not count toward reaching the catastrophic coverage level include:

  • Monthly premiums
  • Cost of non-covered drugs
  • Cost of covered drugs from pharmacies outside of Medicare plan’s network
  • The 56% generic discount

During catastrophic coverage, a person will pay 5% of the cost for each of their drugs or $3.35 for generics and $8.35 for name-brand drugs (whichever is higher). If someone has Medicare Extra Help, they are not eligible for the coverage gap coverage.

For more information on Medicare Prescription Drug (Part D) Plans, click here.
For more information on Medicare Extra Help with Prescription Drugs, click here.