Understanding The Medicare Donut Hole Coverage Gap

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If you’re a Medicare recipient or soon will be, you’ve probably heard the term “donut hole” in reference to Medicare plans with prescription drug coverage, which are also known as Medicare Part D. But what exactly is the donut hole?

The donut hole refers to a coverage gap in most Medicare plans that offer prescription drug coverage. This gap affects what you pay out of pocket for your prescriptions, and it’s helpful to understand how it works so you can plan ahead. In this article, we’ll explain the different phases of the donut hole gap and help you understand how to make the most of your Medicare prescription drug coverage.

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What is the Medicare donut hole?

The donut hole is the gap left over after your Medicare coverage reaches a specific cost threshold for prescription drugs. It’s the third phase of the four phases of prescription drug coverage, which are:

Deductible: Until you meet your annual deductible, you pay for your prescription drugs out of pocket.
Initial coverage: You pay any copays or coinsurance for covered drugs until you and your plan have reached a predetermined cost amount, after which your plan will no longer cover prescription drugs. This amount is subject to change each year, but is $4,660 in 2023.
Donut hole: Rather than paying copays, coinsurance or deductibles, you pay up to 25% of the cost of covered drugs until you’ve spent a certain amount ($7,400 in 2023).
Catastrophic coverage: You pay either 5% of the cost of covered drugs or a specific amount for generic or brand-name drugs, whichever is higher, until the end of the year. In 2023, you’ll pay $4.15 for generic drugs and $10.35 for name-brand drugs during the catastrophic coverage phase.

The donut hole is typically the most expensive of the four phases, as paying 25% for prescriptions will usually cost more than paying copays or coinsurance.

When does the Medicare donut hole end?

The donut hole has been slowly becoming smaller since the passage of the Affordable Care Act (ACA) in 2010. Prior to the passage of the ACA, beneficiaries were responsible for 100% of the cost of covered medications during the donut hole phase. As discounts and subsidies were implemented by the ACA, that amount shrunk to the current figure of 25% in 2023. Your personal donut hole gap ends when you’ve reached the catastrophic coverage phase, which occurs after you spend a certain amount on the cost of covered drugs ($7,400 in 2023).

How do you avoid the Medicare donut hole coverage gap?

All Medicare Part D plans come with a donut hole, so the only way to avoid it is to try and stay under the threshold needed to avoid paying a significant out-of-pocket amount for prescription drugs. If your current prescriptions under Medicare are becoming too expensive, you can talk to your doctor about switching to generic medications or cheaper alternatives. You can also look into Medicare assistance opportunities, such as Medicare Savings Programs or Medicare Extra Help.

Let SelectQuote Help Answer Your Questions About the Medicare Donut Hole

Dealing with the coverage gap left by the donut hole can be frustrating and overwhelming, but we’re here to help. Our licensed insurance agents are experienced in navigating the complexities of Medicare and can offer you personalized advice and Medicare Advantage plan recommendations based on your unique needs and budget. With nearly 40 years of experience in the industry, we are here to help when it comes to finding Medicare coverage that suits your needs.

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