Denis Doulgeropoulos
Your Financial Professional & Insurance Agent
Is the Medicare Donut Hole Really Closed?
You may have heard that the coverage gap for Medicare Part D prescription drug coverage — commonly known as the donut hole — closed in 2020. While it’s true that recent changes should reduce costs for many beneficiaries, the coverage gap still exists, and costs for some prescriptions may increase in the gap.
Medicare Part D Prescription Drug Coverage Stages
Below is an overview of the four stages of Medicare Part D prescription drug coverage and how costs can change, particularly during the coverage gap. However, these stages do not apply to prescription drug coverage provided through Medicare Advantage (Part C) plans.
Stage 1 — Deductible
Most Medicare Part D plans include an annual deductible, which could not exceed $445 in 2021. Therefore, you pay the full negotiated cost of your prescriptions until the deductible is met.
Stage 2 — Initial Coverage
After meeting the deductible, your plan begins sharing prescription costs. Under the standard Medicare model, you would pay 25% while the plan covers 75%. However, most plans do not follow this structure exactly.
Instead, many plans use tiered copays or coinsurance, with different costs for generics, preferred brand-name drugs, non-preferred brand-name drugs, and specialty medications. Consequently, this stage continues until total spending by you and your plan reaches the initial coverage limit of $4,130 in 2021, including the deductible.
Stage 3 — Coverage Gap (Donut Hole)
Once spending exceeds the initial coverage limit, you enter the coverage gap, often called the donut hole. In this phase, you pay 25% of the negotiated retail price for all prescriptions.
For generic drugs, your plan covers the remaining 75%. For brand-name drugs, manufacturers pay 70% while your plan pays 5%. As a result, your out-of-pocket costs may increase or decrease compared with the initial coverage stage, depending on your plan’s copay structure and the type of medication.
You remain in the coverage gap until you reach the out-of-pocket spending threshold of $6,550 in 2021. This total includes your deductible, copays, coinsurance, and the 70% manufacturer discount on brand-name drugs, but it does not include payments made by your plan.
Stage 4 — Catastrophic Coverage
After reaching the out-of-pocket limit, catastrophic coverage begins. At this stage, you pay a much smaller amount for prescriptions for the remainder of the year. Specifically, you pay the greater of 5% of the negotiated retail price or a flat fee, which was $3.70 for generics and $9.20 for all other drugs in 2021.
For additional details about Medicare Part D prescription drug coverage, visit
medicare.gov/drug-coverage-part-d.