The Medicare Part D Coverage Gap (Donut Hole) Explained

The Medicare Part D coverage gap -- commonly called the "donut hole" -- is one of the most misunderstood aspects of Medicare drug coverage. For years it represented a significant out-of-pocket exposure for beneficiaries with high drug costs. Here is how it works in 2022 and how upcoming legislation changes it.

Part D drug coverage moves through four distinct phases each year, based on your total drug spending:

You pay 100% of drug costs until you meet your plan's deductible.

2022 maximum deductible: $480 (plans may have lower or no deductible)

After meeting your deductible, you pay your plan's standard copays or coinsurance -- typically $5-$10 for generics and $40-$100 for brand-name drugs.

This phase continues until your total drug costs (what you and your plan paid together) reach $4,430 in 2022.

Once total drug costs hit $4,430, you enter the coverage gap. In the coverage gap, you pay:

• 25% of the cost of both brand-name and generic drugs

Manufacturer discounts: For brand-name drugs in the coverage gap, drug manufacturers provide a 70% discount. You pay 25% and the manufacturer pays 70% -- but the full negotiated price counts toward your out-of-pocket spending, helping you exit the gap faster.

You remain in the coverage gap until your true out-of-pocket costs (TrOOP) reach $7,050 in 2022.

Once your TrOOP reaches $7,050, catastrophic coverage kicks in. You pay:

• The greater of 5% of the drug cost OR $3.95 for generics / $9.85 for brand-name drugs

Catastrophic coverage continues for the rest of the calendar year.

Not all spending counts toward your TrOOP threshold:

• Counts: Your copays and coinsurance, the manufacturer discount on brand-name drugs in the gap
• Does NOT count: Your plan's premium, your plan's share of drug costs, payments by other insurance

Beneficiaries who qualify for Extra Help (Low Income Subsidy) do not enter the coverage gap -- they pay reduced copays throughout the year regardless of spending level.

The Inflation Reduction Act of 2022 made landmark changes to Part D:

2023: Insulin cost-sharing capped at $35/month for Medicare Part D beneficiaries.

2024: Catastrophic coverage -- beneficiaries no longer pay 5% coinsurance in the catastrophic phase (eliminated cost-sharing above the catastrophic threshold).

2025: The coverage gap is eliminated. A new $2,000 annual out-of-pocket cap takes effect -- once you spend $2,000 out of pocket on Part D drugs in a year, your cost-sharing drops to $0 for the rest of the year.

The $2,000 cap is the most significant improvement to Part D since the program launched in 2006 -- providing meaningful protection for beneficiaries with high drug costs.

• Use generics: Generic drugs cost less and count toward TrOOP at a lower rate
• Apply for Extra Help: If your income qualifies, Extra Help eliminates the coverage gap
• Manufacturer patient assistance programs: Some drug manufacturers offer assistance for beneficiaries in the coverage gap
• Compare plans annually: A plan with better formulary coverage may keep you out of the gap entirely

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.