If you already have or are considering signing up for a Medicare Part D plan, it's important to understand the Medicare Part D donut hole. Also called the coverage gap, the donut hole impacts the amount you'll pay for the prescription drugs you need. In this guide, we'll cover what the Medicare donut hole is and how to avoid it, which costs count toward the donut hole (and which don't), additional ways to save on your prescriptions, and more.
What Is the Donut Hole in Medicare?
In Medicare, the donut hole (also known as the coverage gap) refers to the current temporary limit on what Medicare Part D drug plans will cover in the future. It begins after you and your Part D plan have spent a certain amount on covered drugs. So, what is the Medicare donut hole for 2023? As soon as you reach $4,660 on covered drugs, you'll enter the coverage gap. You can expect to get out of the donut hole once your total expenses for covered drugs reach $7,400.
There are different rules for what you'll pay in the coverage gap for generic and brand name medications.
Brand Name
Once in the coverage gap, you won't pay over 25 percent of the cost of covered drugs in your plan. The discount will be applied to the price your Part D plan sets with the pharmacy for that specific drug. This discounted rate applies whether your prescriptions are ordered by mail or picked up at the pharmacy.
While you won't pay more than 25 percent of the brand-name drug's price, almost the full amount will count as an out-of-pocket expense to help you get out of the coverage gap. If your Medicare drug plan includes coverage in the donut hole, there's a possibility you'll receive a discount after your plan's coverage is applied to the drug's price. Brand-name drug discounts will apply to the remaining balance you owe.
Generic
In the coverage gap, Medicare will pay 75 percent of the cost of generic drugs, and you'll be responsible for the remaining 25 percent. Coverage is different compared to brand-name drugs. For generics, only the amount you pay will go toward getting out of the coverage gap. Like with brand-name drugs, if your Medicare drug plan includes coverage in the gap, there's a chance you'll receive a discount after your plan's coverage is applied to the drug's price.
What Costs Count Toward the Donut Hole?
Keep in mind that not all costs count toward getting you out of the donut hole.
Costs Counted
- Yearly deductible, coinsurance, and copayments
- Brand-name drug discounts in the coverage gap
- The amount you pay in the coverage gap
- The amount your plan paid for drugs during the initial coverage period
- Costs paid by others on your behalf, such as family members or financial assistance programs
Costs Not Counted
- Drug plan premium
- Pharmacy dispensing fee
- The price you pay for drugs that aren't covered
- The amount your plan pays toward a drug's cost
- Costs for drugs purchased at pharmacies outside your plan's network
Money-Saving Tip: Prescription costs can add up. If you're looking for ways to cut down on other expenses and save, check out our list of senior discounts.
A Medicare Donut Hole Example
Below, we'll give you an example of how the donut hole works for both brand-name and generic drugs.
Brand Name
Billy has reached the donut hole and goes to his pharmacy to fill a prescription for a covered brand-name drug. Priced at $73, there's a $2 dispensing fee. While the total is $75, Billy is responsible for only 25 percent of the total cost ($75 x .25 = $18.75).
Billy's cost ($18.75) plus the manufacturer's $51.50 discount ($73 x .70 = $51.10) are considered out-of-pocket expenses. As a result, $69.85 ($18.75 + $51.50) counts toward Billy's out-of-pocket spending, which helps him get out of the donut hole. The remaining $5.15 (5 percent of the drug cost ($3) and 75 percent of the dispensing fee ($2.15) paid by Billy's drug plan) doesn't count toward Billy's out-of-pocket spending.
FYI: Still learning about the world of Medicare and what it covers? Visit our 2023 guide to Medicare for more information.
Generic
Meredith has reached the donut hole and goes to her pharmacy to fill a covered generic drug prescription. Priced at $22, there's a $2 dispensing fee that gets added to the cost ($24 total). Meredith is required to pay 25 percent of her plan's cost for the drug and dispensing fee ($24 x .25 = $6). The $6 is counted as out-of-pocket spending to help Meredith get out of the donut hole.
How to Avoid the Medicare Donut Hole
Worried about entering the coverage gap? Below are a few ways you may be able to save on your prescriptions and avoid the donut hole.
- Choosing the best Medicare drug plan for your prescription needs can help you spend less on prescription drugs and avoid entering the donut hole.
- If you're worried that your plan isn't right for you and you may enter the donut hole, consider switching plans during the Medicare open enrollment period (which runs from October 15 to December 7). During this period, you may have the option to join, switch, or leave Medicare Part D and Medicare Advantage plans.
- Outside of the open enrollment period, you can also see if you qualify for a Special Enrollment Period. If eligible, you can change your drug plan.
- Medicare's Extra Help/Part D Low-Income Subsidy might be an alternative if you have limited income and resources. If you qualify, you may save significantly on your drug plan and pharmacy medications.
Quick Tip: Interested in switching your Medicare Part D drug plan or signing up for the first time? Visit our guide to Medicare enrollment to learn more.