What Is the Medicare Coverage Gap Discount Program?
Demystify the Medicare Coverage Gap Discount Program. Learn how this key initiative automatically lowers prescription drug costs for Part D enrollees.
Medicare Part D, the prescription drug component of Medicare, helps beneficiaries manage medication costs. This article explores the historical framework of Part D, including the former Coverage Gap Discount Program, and details significant changes implemented as of January 1, 2025, which have reshaped how prescription drug costs are covered.
Understanding Medicare Part D Coverage Stages
Historically, Medicare Part D prescription drug coverage was structured into four distinct phases. The first phase was the deductible stage, where beneficiaries paid 100% of their prescription drug costs until a set annual amount was met. For 2025, the standard deductible is $590, though some plans may have a lower or even no deductible.
Following the deductible, beneficiaries entered the initial coverage stage. In this phase, the Part D plan and the beneficiary shared costs, with the beneficiary typically paying a copayment or coinsurance for their medications. This stage continued until total drug costs reached a specific limit. The third stage was the coverage gap, often referred to as the “donut hole,” where beneficiaries were responsible for a higher percentage of their drug costs.
The final stage was catastrophic coverage, which beneficiaries entered after their out-of-pocket spending reached a certain threshold. In this stage, the plan covered nearly all remaining drug costs for the rest of the year, significantly reducing the beneficiary’s financial responsibility. These stages often led to unpredictable costs for those with high prescription needs.
The Former Coverage Gap Discount Program
The Medicare Coverage Gap Discount Program was established to provide financial relief to beneficiaries once they entered the coverage gap, or “donut hole.” This program offered discounts on prescription drugs purchased during this stage of coverage. For brand-name drugs, beneficiaries in the coverage gap received a discount at the pharmacy.
Under this program, drug manufacturers were responsible for providing a 70% discount on the negotiated price of brand-name drugs. The Part D plan covered an additional 5% of the cost, meaning the beneficiary paid 25% of the drug’s price. For generic drugs, beneficiaries paid 25% of the cost, with the Part D plan covering the remaining 75%. The discounted amount for brand-name drugs, including the manufacturer’s portion, counted towards the beneficiary’s True Out-of-Pocket (TrOOP) costs. This helped beneficiaries reach the catastrophic coverage stage faster.
The New Manufacturer Discount Program and 2025 Part D Changes
As of January 1, 2025, Medicare Part D has undergone significant changes due to the Inflation Reduction Act. The former coverage gap phase has been eliminated, simplifying the Part D benefit into three core phases: deductible, initial coverage, and catastrophic coverage. This reform aims to make drug costs more predictable and affordable for beneficiaries.
A new Manufacturer Discount Program has replaced the previous Coverage Gap Discount Program. Manufacturers now provide a 10% discount on brand-name drugs during the initial coverage phase. Once beneficiaries reach the catastrophic coverage phase, manufacturers will contribute a 20% discount on brand-name drugs. Beginning in 2025, there is a new annual out-of-pocket spending cap of $2,000 for all Part D beneficiaries. Once out-of-pocket costs reach this limit, beneficiaries have no further cost-sharing for covered Part D drugs for the remainder of the plan year.
Beneficiary Eligibility and Receiving the Discount
Eligibility for receiving prescription drug discounts under Medicare Part D: beneficiaries must be enrolled in a Medicare Part D plan. Under the former Coverage Gap Discount Program, the discount was automatically applied at the pharmacy once a beneficiary reached the coverage gap. No separate application process was required.
With the changes effective January 1, 2025, the process remains automatic. Beneficiaries continue to present their Part D plan card at the pharmacy. The system automatically tracks their spending towards the new $2,000 out-of-pocket cap, and applicable manufacturer discounts are seamlessly applied. This ensures financial relief is integrated directly into the purchase process.