What Is the Medicare Coverage Gap Discount Program?

The Medicare Coverage Gap Discount Program was part of Medicare Part D, designed to help beneficiaries manage prescription drug costs. It addressed the “coverage gap” or “donut hole,” a phase that temporarily increased out-of-pocket expenses for beneficiaries. The program aimed to reduce the financial burden during this period.

Understanding the Medicare Coverage Gap Discount Program

The Medicare Coverage Gap Discount Program was established by the Affordable Care Act to provide financial relief during the “coverage gap” phase of Medicare Part D. This coverage gap, often informally called the “donut hole,” was a temporary period where a Medicare Part D plan would limit its payment for prescription drugs after a certain amount of spending had occurred. Beneficiaries would enter this gap once their total drug costs, including amounts paid by themselves and their plan, reached a specific limit.

Historically, beneficiaries were responsible for a higher percentage of drug costs within this gap. The program provided discounts on brand-name prescription drugs during this phase. The program’s design aimed to make drug costs more manageable. The coverage gap existed through 2024, and the discount program played a significant role in Medicare Part D until recent legislative changes.

Eligibility for the Program

Eligibility for the Medicare Coverage Gap Discount Program was automatic for beneficiaries enrolled in a Medicare Part D plan who reached the coverage gap threshold. This applied to individuals not receiving “Extra Help,” a Medicare program assisting those with limited income and resources with drug costs. Once a beneficiary’s combined spending and their plan’s spending on covered drugs reached the specified limit, they would enter the coverage gap and become eligible for discounts.

The discounts primarily applied to brand-name prescription drugs covered by the beneficiary’s Part D plan. Manufacturers of these brand-name drugs were required to sign agreements with Medicare to participate. While generic drugs were also covered in the gap, their discount mechanism was different and not directly provided through the program.

How the Discount Was Applied

When a Medicare Part D beneficiary entered the coverage gap, the discount on brand-name prescription drugs was applied automatically at the pharmacy counter. Historically, beneficiaries would pay 25% of the drug’s cost, with the manufacturer providing a 70% discount and the Part D plan covering the remaining 5%. This meant the total discount received by the beneficiary on brand-name drugs in the coverage gap was 75%.

The discounted amount, including the manufacturer’s portion, counted towards the beneficiary’s annual out-of-pocket spending limit. This helped them exit the coverage gap faster and reach catastrophic coverage.

As of January 1, 2025, the Medicare Part D coverage gap, often known as the “donut hole,” has been eliminated. This means the Medicare Coverage Gap Discount Program has been replaced by a new Medicare Part D Manufacturer Discount Program. Under the new structure, once a beneficiary’s out-of-pocket costs for covered prescription drugs reach an annual cap of $2,000 in 2025, they will pay nothing for the remainder of the year. This establishes a clear maximum out-of-pocket expense for prescription medications.