Medicare Minutes: What is the Donut Hole?

If you’ve spent any time researching Medicare Part D plans, then you’ve probably come across this term. But what could a donut possibly have to do with Medicare? Our all-star Medicare agent, George, is here to clear up any confusion you have about the Medicare Part D donut hole!

Senior man with overlaid text explaining the importance of building a Medicare strategy before retiring.

What is the Medicare Part D donut hole?

When talking about Medicare, the donut hole refers to the coverage gap some people will experience with their Medicare Part D plan. Medicare Part D is the part of Medicare that covers prescription drugs.

You see, with a Part D plan, your out-of-pocket costs for prescription drugs will vary throughout the year. This payment system is broken into four phases. You move through these phases as your out-of-pocket costs meet certain milestones set on a year-to-year basis. The “donut hole” is simply another name for the third phase, which is also known as the “Coverage Gap”.

When will I enter the “donut hole” or coverage gap phase?

You will enter this phase when the total drug costs paid by both you and your plan exceeds the yearly limit. This limit was set at $3,750 in 2018, but in 2019 that limit has increased to $3,280. During your time in this phase, you are responsible for paying a percentage of the full price of all of your drugs until you spend a total of $5,100. In 2018, people in the coverage gap were responsible for paying 35% of the total cost for brand name drugs and 44% of the total cost for generic drugs. In 2019, due to recent legislation, the donut hole has “closed” for brand name drugs. Now, enrollees in the coverage gap are only responsible for 25% of the total cost for brand name drugs.

How do I get out of the donut hole phase?

Once your total out-of-pocket costs for the year reach $5,100, you will move into the fourth and final payment stage. This last phase is known as the Catastrophic Coverage phase.

At this point, your plan will once again step in to cover 95% or more of your drug costs for the remainder of the year.

So, there you have it! The donut hole is simply a nickname for the third phase of drug coverage under a Medicare Part D plan.

Have more questions about Medicare drug costs?

To learn more about how your drug costs will be covered on Medicare, read the article linked below.

 

Related articles, tools, videos, and more

Renew has tons of great resources to help you figure out retirement.

Group Created with Sketch.
Not sure where to start?

Read our quick-start guide for help, including which questions you should be asking as you approach retirement.

Read our quick start guide

Group Created with Sketch.
Not sure where to start?

Read our quick-start guide for help, including which questions you should be asking as you approach retirement.

Read our quick start guide