What Happens When You Reach the Donut Hole?
Learn how the Medicare Part D "donut hole" impacts your prescription drug costs. Understand this crucial coverage phase and how you progress through it.
Medicare Part D, the prescription drug coverage component of Medicare, helps manage medication costs. Historically, coverage included a “coverage gap” or “donut hole,” a temporary limit on drug plan coverage. Due to legislative changes, including the Inflation Reduction Act of 2022, this coverage gap is eliminated starting January 1, 2025. This simplifies the benefit structure and aims to reduce out-of-pocket expenses for many beneficiaries.
Understanding the Initial Coverage Phase and the Eliminated Gap
Beneficiaries begin their Medicare Part D year in a deductible phase, paying the full cost of drugs up to a certain amount before their plan pays. For 2025, the standard deductible for Part D plans is a maximum of $590, though some plans may offer a lower or zero-dollar deductible. Once the deductible is satisfied, individuals transition into the initial coverage phase.
In this initial coverage phase, beneficiaries pay a portion of their drug costs, typically a copayment or coinsurance, while their Part D plan covers the remaining amount. For 2025, beneficiaries are generally responsible for 25% of their prescription drug costs. Historically, the “coverage gap” or “donut hole” meant out-of-pocket costs temporarily increased. For 2025, this gap is eliminated. All spending by the beneficiary in the initial coverage phase now directly contributes towards a new, lower out-of-pocket maximum.
Simplified Cost-Sharing Towards Catastrophic Coverage
The elimination of the coverage gap in 2025 streamlines the path to lower prescription drug costs. During the initial coverage phase, after the deductible is met, beneficiaries continue to pay their coinsurance, typically 25% of the drug’s cost. This cost-sharing continues until total out-of-pocket spending for covered Part D drugs reaches a specific annual limit. The plan covers the majority of the drug cost, and for brand-name drugs, a manufacturer discount program also contributes.
There is no longer an intermediate period where beneficiaries face higher percentages of drug costs due to the “donut hole.” Instead, expenses incurred by the beneficiary from the deductible and initial coverage phase accumulate directly towards a defined out-of-pocket threshold. This structure provides greater predictability and financial relief, as high drug costs will lead more quickly to the catastrophic coverage phase. Amounts paid by the beneficiary, along with contributions from specific assistance programs, all count towards reaching this threshold.
Reaching Catastrophic Coverage
A key change for Medicare Part D in 2025 is a new, lower out-of-pocket spending cap that triggers catastrophic coverage. Once a beneficiary’s True Out-of-Pocket (TrOOP) costs reach $2,000 in a calendar year, they move into the catastrophic coverage phase. This $2,000 limit includes the deductible, any copayments or coinsurance paid during the initial coverage phase, and amounts paid by certain third parties on the beneficiary’s behalf, such as State Pharmaceutical Assistance Programs.
Plan premiums do not count towards this TrOOP limit. Once the $2,000 out-of-pocket threshold is met, beneficiaries will pay $0 for all covered Part D prescription drugs for the remainder of that calendar year. At the beginning of each new calendar year, the entire process resets, and beneficiaries start again from the deductible phase, working their way towards the out-of-pocket maximum.
Monitoring Your Progress
Your drug plan provides an “Explanation of Benefits” (EOB) statement for tracking your spending. This document details the prescriptions you have filled, the amount your plan paid, what you and others have paid, and how much counts towards your out-of-pocket costs and total drug costs.
EOBs are typically sent monthly or after a claim is processed, offering a clear snapshot of your accumulated spending. Many drug plans also offer online portals or mobile applications where beneficiaries can view their spending history and track their progress towards the annual out-of-pocket limit in real-time. If you have questions or need clarification on your spending, contacting your drug plan directly by phone can provide personalized assistance and help you understand your current coverage status.