Broker Check

What is the Donut Hole?

| February 22, 2023

     Most Medicare drug plans or Medicare plans with drug coverage have a coverage gap. This coverage gap is also called the "donut hole". This means there's a temporary limit on what the drug plan will cover for drugs. This temporary limit may raise your out-of-pocket prescription cost. Now, not everyone will enter the coverage gap. But for those that do, the coverage gap begins after you and your drug plan have spent a certain amount for covered drugs this dollar amount can change on a year-to-year basis. For 2023, once you and your prescription plan combined have spent $4,660, you are in the donut hole. You’ll remain in the donut hole until you and your plan have spent a combined $7,400.  

     The way you progress through the coverage gap is different compared to how you got in. Once you reach the coverage gap, you'll pay no more than 25% of the cost for your plan's covered brand-name prescription drugs. Even though you only pay 25% of it’s cost, almost all the retail cost counts towards your out-of-pocket spending. Of the total cost of the drug, the manufacturer pays 70% to discount the price for you, and your part of 25% equals 95% of the cost of the drug that counts towards getting you out of the hole. Then your plan pays the other 5% of the cost, but that does not count towards your total. A drug dispensing fee may also apply in which the plan pays 75% and you pay 25%. This 75% the plan pays here does not count toward your total out-of-pocket spending. 

     Generic drugs account differently than the brand name drugs we just spoke about. Medicare will cover 75% of the price for generic drugs, and the beneficiary will account for the last 25% of the price. For generic drugs, only the amount you pay will count toward getting you out of the coverage gap. 

     There may be alternatives to using your prescription drug plan to help reduce costs and to keep you out of the donut hole, or maybe at least delaying your entry. You may qualify for discounts through the manufacturer once in the coverage gap, or you may be able to utilize one of the many different coupon programs like GoodRx. In some situations, it may help. If you’re unsure and want help or need questions answered feel free to reach out to one of our agents and we’ll be happy to assist.