What Is the Donut Hole Amount for 2024?

Medicare Part D is a federal program that helps Americans manage prescription drug costs. It works with private insurance companies to offer prescription drug plans. Understanding its coverage stages is important for beneficiaries to anticipate out-of-pocket expenses, particularly concerning the “coverage gap” or “donut hole.” This article details Medicare Part D’s 2024 parameters, including how the coverage gap functions and what occurs once a beneficiary moves past it.

Understanding Medicare Part D Coverage Stages

Medicare Part D coverage unfolds in distinct stages throughout the year, influencing how much a beneficiary pays for prescription medications. The first stage is the deductible phase, where the beneficiary is responsible for the full cost of covered drugs up to a certain amount. For 2024, the maximum deductible a Part D plan can charge is $545. Once the deductible is met, the beneficiary transitions into the initial coverage phase.

During the initial coverage phase, the plan begins to share the cost of covered prescription drugs. The beneficiary generally pays a copayment or coinsurance, while the Part D plan covers the remaining portion. This phase continues until the total drug costs, which include amounts paid by both the beneficiary and the plan, reach a specific limit. For 2024, this initial coverage limit is $5,030. Reaching this threshold signifies entry into the coverage gap.

The Coverage Gap in 2024

Entry into the coverage gap, or “donut hole,” occurs when a beneficiary’s total drug costs reach the initial coverage limit of $5,030 in 2024. In this phase, beneficiaries become responsible for a larger percentage of their prescription drug costs. In the 2024 coverage gap, individuals pay 25% of the cost for both generic and brand-name drugs.

For brand-name drugs in the coverage gap, the manufacturer provides a 70% discount on the drug’s price. This discount is applied at the pharmacy, directly reducing the amount the beneficiary pays at the point of sale. The discounted amount provided by the manufacturer counts towards the beneficiary’s out-of-pocket spending limit, helping them exit the coverage gap faster.

The beneficiary remains in the coverage gap until their true out-of-pocket (TrOOP) costs reach $8,000 for 2024. Payments that count towards this threshold include the annual deductible, copayments and coinsurance paid during the initial coverage phase, and amounts the beneficiary pays for drugs while in the coverage gap. The 70% manufacturer discount on brand-name drugs also counts towards meeting this $8,000 out-of-pocket limit.

Catastrophic Coverage

Once a Medicare Part D beneficiary reaches the $8,000 out-of-pocket threshold, they exit the coverage gap and enter the catastrophic coverage phase. This phase provides relief from prescription drug expenses for the remainder of the calendar year. A change took effect in 2024, altering cost-sharing in this phase.

As of January 1, 2024, beneficiaries in the catastrophic coverage phase pay no coinsurance or copayments for their covered Part D prescription drugs. Once the $8,000 out-of-pocket threshold is met, the beneficiary’s costs for covered medications drop to zero for the rest of the year. This change caps annual out-of-pocket spending for individuals with high prescription drug costs.