The Medicare Part D Coverage Gap: What the Donut Hole Means for You
The Medicare Part D coverage gap -- the "donut hole" -- has been closing for years and is now eliminated for most costs. Here is how Part D cost stages work in 2018 and beyond.
The Medicare Part D Coverage Gap: What the Donut Hole Means for You
The Medicare Part D "donut hole" -- the coverage gap that left beneficiaries paying full drug costs for a period each year -- has been one of the most confusing and frustrating aspects of Medicare since Part D launched in 2006. The Affordable Care Act began closing the gap in 2010, and it is now largely closed for most drug costs.
Here is how Part D coverage stages work in 2018 and what you need to know.
The Four Stages of Part D Coverage
Stage 1: Deductible Phase
Most Part D plans have an annual deductible -- up to $405 in 2018. During this phase, you pay the full cost of your drugs until you've met the deductible.
Some plans have $0 deductibles (usually for preferred generics) or waive the deductible entirely. Compare plans carefully -- a plan with a lower deductible may have higher premiums.
Stage 2: Initial Coverage Phase
After meeting your deductible, you enter the initial coverage phase. You pay your plan's copays or coinsurance for covered drugs, and your plan pays the rest.
This phase continues until your total drug costs (what you and your plan have paid together) reach $3,750 in 2018.
Stage 3: Coverage Gap (Donut Hole)
Once your total drug costs reach $3,750, you enter the coverage gap. In 2018:
For brand-name drugs: You pay 35% of the cost (down from 100% when Part D launched). The manufacturer pays 50% and your plan pays 15%.
For generic drugs: You pay 44% of the cost.
The coverage gap continues until your out-of-pocket spending reaches $5,000 in 2018 (the catastrophic threshold).
Important: The discounts you receive on brand-name drugs in the coverage gap count toward your out-of-pocket spending -- helping you move through the gap faster.
Stage 4: Catastrophic Coverage
Once your out-of-pocket spending reaches $5,000, you enter catastrophic coverage. In 2018, you pay the greater of:
- 5% of the drug cost, OR
- $3.35 for generics / $8.35 for brand-name drugs
This phase continues for the rest of the calendar year.
The Donut Hole Is Closing
The ACA mandated gradual closure of the coverage gap. By 2020, the gap was fully closed for both brand-name and generic drugs -- beneficiaries pay no more than 25% in the coverage gap, the same as in the initial coverage phase.
In 2018, the gap is nearly closed for brand-name drugs (35% vs. 25% in initial coverage) but still significant for generics (44% vs. 25%).
Strategies to Minimize Coverage Gap Costs
Choose a plan with good coverage for your specific drugs. Some plans have $0 copays for preferred generics even in the coverage gap.
Ask about generic alternatives. Generic drugs cost significantly less than brand-name equivalents and move you through the gap more slowly.
Use manufacturer patient assistance programs. Many brand-name drug manufacturers offer assistance programs for Medicare beneficiaries in the coverage gap.
Apply for Extra Help. If your income qualifies, Extra Help eliminates the coverage gap entirely.
Consider a Medicare Advantage plan with drug coverage (MAPD). Some MAPD plans offer better drug coverage than standalone Part D plans.
Tracking Your Drug Costs
Your Part D plan sends you an Explanation of Benefits (EOB) each month showing your cumulative drug costs and which coverage stage you're in. Review these statements to know when you're approaching the coverage gap.
We do not offer every plan available in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.
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About the Author
William Gray
Independent Medicare BrokerUS Air Force Veteran · Florida Medicare Specialist
William Gray is an independent Medicare insurance broker based in Daytona Beach and Palm Coast, FL. A US Air Force veteran (A-10 crew chief, Germany), he spent years in corporate insurance before going independent to serve Florida seniors directly. He has helped more than 1,000 clients across Northeast Florida compare Medicare Advantage, Medigap, and Part D plans — always at no cost to the client.
