What was the Medicare Donut Hole?

Estimated read time: ~5 minutes
Summary:

Beginning Jan., 1, 2025, the Medicare Part D coverage gap, also called the donut hole, was eliminated under the Inflation Reduction Act of 2022. Learn about the current Part D coverage stages and how plans used to work when coverage included a donut hole.

Medicare can be a source of great financial comfort for many seniors. If you’re enrolled in a Part D plan, you know how good it feels to walk into a pharmacy, armed with coverage that helps you manage your prescription drug costs.

However, Medicare Part D plans have different stages of coverage that affect how much you’ll pay out-of-pocket. Plus, you may wonder if you still need to worry about the infamous coverage gap commonly referred to as “the Medicare donut hole.”

We are here to break it down for you, explain the stages and provide tips on managing costs.

What are the coverage stages for Medicare Part D?

Medicare prescription drug plans typically have three main stages:¹

• Deductible stage: 
  During the deductible stage, you pay the full cost of your medications until you meet the plan’s set annual deductible amount. (Some plans don’t have a deductible.) Each year, Medicare limits the amount a plan can set for its deductible.
• Initial coverage stage:
  Once you’ve met your deductible (if applicable), you will reach the initial coverage stage. In this stage, you pay a 25% coinsurance for your covered drugs until your out-of-pocket spending reaches $2,000 for the year.
• Catastrophic coverage stage: 
  After you’ve paid $2,000 out-of-pocket, you will reach the catastrophic coverage stage. In this stage, you pay nothing for your covered medications for the rest of the year.

You’ll notice in these three stages there is no donut hole. Medicare prescription drug plans no longer have a coverage gap. This gap was eliminated under the Inflation Reduction Act of 2022 and went into effect on January 1, 2025.

What was the Medicare coverage gap?

Prior to 2025, most Medicare prescription drug plans had a gap in coverage known as the “donut hole.” This gap existed between the plan’s coverage limit and the out-of-pocket maximum. Here’s how it worked in 2024, the last year the coverage gap existed:

• You paid the full cost of your drugs until you reached your plan’s annual deductible, if applicable
• Once you reached your deductible, your Part D coverage paid its share until you reached the annual coverage limit ($5,030 in 2024)
• After that, you entered the coverage gap or donut hole.
• Inside the Medicare donut hole, you were responsible for a greater portion of the cost sharing for covered prescription drugs.
• Once you reached the set annual limit on out-of-pocket spending ($8,000 in 2024), you exited the donut hole and received catastrophic coverage for the remainder of the year.

How to manage prescription drug costs

By removing the donut hole and capping out-of-pocket spending, Part D plans limit how much you need to pay for covered prescriptions each year. If you are wondering how else you can save money at the pharmacy, here are some tips to reduce drug costs:

• Order by mail.
  You may be able to get larger quantities of prescriptions at one time as well as qualify for discounts and/or free shipping on your medications.
• Buy generics when possible.
  These cost less than brand-name drugs.
• Pay attention to your plan’s formulary.
  Review your formulary to understand covered drugs. If a drug isn’t covered, you will be responsible for the full cost, and it won’t count toward reaching your out-of-pocket maximum.

If you have limited income or get financial assistance, you may qualify for Extra Help. Extra Help is a government program through Social Security that provides financial assistance for Part D coverage. You don’t have to worry about the coverage gap if you have Extra Help.

Also, note that Part D prescription drug coverage does not cover the medication of seniors receiving hospice care. Instead, if you’re receiving hospice care at home, your original Medicare hospice benefit will most likely cover your medications.

Before purchasing Part D coverage, be sure you know the details of the plan and check to see if your current prescriptions are covered.

FAQs on Part D coverage and the Medicare donut hole

1. What is the Medicare donut hole in 2025?
   The donut hole in Medicare Part D plans was eliminated in 2025 under the Inflation Reduction Act. Prior to that, Medicare prescription drug plans typically had a donut hole. The donut hole was a gap in prescription drug coverage that occurred after you reached the plan’s coverage limit and before you reached the out-of-pocket maximum.
2. How can I get prescription assistance for seniors on Medicare?
   Seniors on Medicare can explore initiatives like Extra Help – a government program through Social Security that provides financial assistance for Part D coverage.
3. Has the Medicare donut hole ended?
   2024 was the last year for the Medicare donut hole. Now there is no longer a coverage gap in Medicare Part D prescription drug plans thanks to the Inflation Reduction Act of 2022. This change means plans provide more consistent coverage, with the plan covering a larger percentage of the costs throughout the year, from the initial coverage stage through the catastrophic coverage stage.

¹ Medicare.gov. Web page: How much does Medicare drug coverage cost? Retrieved Jan. 15, 2025, from https://www.medicare.gov/health-drug-plans/part-d/basics/costs

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