The Donut Hole or Coverage Gap: What You Need to Know - Twin City Underwriters

The Donut Hole or Coverage Gap

What is it? Will it affect me? When will that happen and how long does it last?

You may have heard the phrase “Donut Hole” on the news. Unfortunately, this isn’t a sweet sugary treat. Most Medicare Drug plans (either stand alone or embedded with your health plan) will have a Donut Hole – a gap in coverage.

It’s important to note that not everyone will enter the coverage gap or donut hole, but for those who do you will want to understand how the different stages affect your medication costs throughout the year.

Medicare regulates and sets the dollar amount you will spend before you enter the donut hole – and what your cost sharing will be once you reach the donut hole. Medicare also sets the limit of your out-of-pocket cost while in the coverage gap – before moving into the next phase known as Catastrophic coverage. These thresholds change each year, and with each calendar year, you start over at the first stage or the deductible.

Related Read: What Is Medicare Part D and What Does It Cover?

Let’s take a closer look at 2024 and previous years under a Medicare Part D plan:

Stage 1

• DEDUCTIBLE – You pay 100%
  • This is plan dependent, with some plans requiring differing amounts up to $545 or depending on which medications you take. 

Medicare Prescription Deductibles: What You Need To Know

Stage 2

• INITIAL COVERAGE – You share the cost with your Medicare Part D plan
  • Copays (fixed flat amounts)
  • Coinsurance (percentage of the retail cost)

Stage 3

• COVERAGE GAP – DONUT HOLE (not everyone enters this stage)
  • When the shared retail cost between you and the insurance company reaches $5,030 (2024) – you move into the Donut Hole also known as the Coverage Gap.
    • Costs for prescriptions change – you will pay 25% of ALL retail costs, even if your medications were at $0 due to plan cost-sharing.
    • Cost sharing continues until YOUR out-of-pocket costs hit an $8,000 limit. Once you reach that cap, you will move out of the Coverage Gap stage, and into Catastrophic coverage.

Related Read: Insulin Coverage Through Medicare Part D

Stage 4

• CATASTROPHIC COVERAGE
  • For 2024, all costs for Catastrophic coverage are $0. You will not see a charge for any medication for the rest of this calendar year. 

    This exception does not apply to your plan premium, over the counter drugs, or drugs that are not on your plans’ formulary.

The Coverage Gap will be sunsetting at the end of 2024. 

Not sure if the Medicare Donut Hole will impact you?  Our team is here to help – reach out to us today.

Medicare Donut Hole Changes

Starting January 1st, 2025, there will no longer be a coverage gap. 

Stage 1 

• DEDUCTIBLE – You are responsible for 100% of costs

For 2025, this amount can be anywhere up to a max of $590 in costs. Once again, this is plan specific. Check your individual plan for details.

Stage 2

• INITIAL COVERAGE – You share the cost with your Insurance Part D plan
  • Copays – (fixed flat amounts)
  • Coinsurance – (Percentage of the retail cost)

• Cost sharing continues until YOUR out-of-pocket costs hit a $2,000 limit. Once you reach that cap, you will move out of the Initial Coverage stage, and into Catastrophic coverage.

Stage 3

• CATASTROPHIC COVERAGE – All costs drop to $0. 
• You will not see a charge for any plan covered prescription medication for the rest of that calendar year. 
• This exception does not apply to your plan premium, over the counter drugs, or drugs that are not on your plans’ formulary.

This is an updated blog post that was originally published in 2018.

Choosing a Medicare plan can be difficult. Twin City Underwriters helps Medicare recipients in Minnesota, Wisconsin, North Dakota, South Dakota, Iowa and Florida find the Medicare plan that meets their unique needs. Schedule a one-on-one meeting with one of our Medicare insurance brokers to get your questions answered!

Do you need help with Medicare, insurance and health plans? Explore your options with Allina Health Aetna, Blue Cross/Blue Shield of Minnesota, Medica and UCare. We work with you to find the best plan for your needs and budget. Contact us today to get started.