Is the Medicare donut hole really closed?

Tuesday, September 7, 2021

You may have heard that the coverage gap for Medicare Part D prescription drug coverage, commonly known as the donut hole, closed in 2020. While it’s true that recent changes should reduce costs for many beneficiaries, the coverage gap still exists, and costs for some prescriptions may increase in the gap.

Stage 1 — Deductible. Most Part D plans have an annual deductible that cannot exceed $445 in 2021. You pay the full, negotiated price for your prescriptions until you meet the deductible.

Stage 2 — Coverage. After you meet the deductible, your plan covers part of the cost of your prescriptions. With the standard Medicare model, you would pay 25% of the cost and the plan would pay 75%. However, few plans follow the standard model. Most have varying copays or coinsurance for drugs at different “tiers.” This coverage continues until spending by you and your plan reaches the initial coverage limit ($4,130 in 2021, including the deductible).

Stage 3 — Coverage gap. When you exceed the initial coverage limit, you enter the coverage gap (donut hole). In this stage, you pay 25% of the negotiated retail price for all prescriptions. If your plan follows the standard Medicare model in which you pay 25% of the cost of all prescriptions, you would see no difference in the coverage gap, so the donut hole would be effectively closed. However, because most plans have different copays or coinsurance for different types of drugs, the 25% of retail price that you pay in the coverage gap may be higher or lower than what you pay during the coverage stage. The good news is that you remain in the coverage gap only until you reach the out-of-pocket spending limit, which is $6,550 in 2021.

Stage 4 — Catastrophic coverage. After you reach the out-of-pocket spending limit, you pay a relatively small amount per prescription for the rest of the year: the greater of 5% of the plan’s negotiated retail price or a flat fee ($3.70 for generics, $9.20 for all other drugs in 2021).

For additional information on Medicare Part D drug coverage, see medicare.gov/drug-coverage-part-d.

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The information contained in this article have been derived from sources believed to be reliable, but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed.