The Medicare Donut Hole, Explained
The term “donut hole” refers to a gap in Medicare Part D prescription medication coverage. Once this coverage gap starts, you will likely pay more out of pocket for your medications. Here’s what to know about the Medicare donut hole, including how it may affect the cost of your prescription medications this year.
Medicare is a federally-run health insurance program for people age 65+ and people with disabilities, regardless of income. It is different from Medicaid, which is a state and federal program that provides health coverage if you have a very low income.
Medicare has four main parts:
- Part A: coverage for inpatient hospital visits and skilled nursing facility services
- Part B: coverage for physician and outpatient hospital services and durable medical equipment (DME) costs, including insulin pumps, blood sugar test stips, some continuous glucose monitors (CGMs), nebulizers, and oxygen equipment
- Part C, also known as Medicare Advantage (MA) plans: offered by private insurance companies to provide the same benefits as Medicare Parts A and B; many also offer prescription coverage similar to Part D
- Part D: coverage for prescription medications that are commonly dispensed from the pharmacy including respiratory medications and injectable insulin; may cover insulin patch pumps; you can change Part D plans each year
The Medicare Part D coverage gap
Part D plans have an annual coverage gap known as the donut hole. Once this begins, you will pay more for your medications until you reach the yearly limit on out-of-pocket costs.
Initial coverage limit
The donut hole begins when your Medicare plan has paid a certain amount toward your prescription medications in a given year. This is sometimes referred to as the initial coverage limit. In 2022, the initial limit for prescription drug coverage on Medicare Part D plans is $4,430/year, an increase from $4,130 in 2021.
Once in the donut hole, you become responsible for no more than 25% of your medication costs until you hit a certain out-of-pocket threshold and can exit the donut hole. For example, if a medication’s total cost is $100 and you pay a $20 copay during the initial coverage period, you will be responsible for paying $25 — 25% of $100 — while in the donut hole.
The out-of-pocket threshold is the amount of money you have to spend out of pocket before you are allowed to leave the donut hole. In 2022, the out-of-pocket threshold for Part D plans is $7,050, an increase from $6,550 in 2021.
The following count toward your total out-of-pocket costs while in the donut hole:
- Out-of-pocket expenses for generic and brand-name medications
- Your yearly deductible
- Copays or coinsurance
After the donut hole
After you’ve reached the out-of-pocket threshold, you receive “catastrophic coverage.” During this time, your share of medication costs will drop significantly to either 5% of a medication’s cost or a small copay — whichever is higher.
The minimum copay for a one-month supply of generic medication for Medicare Part D plans in 2022 is $3.95, and the minimum copay for a one-month supply of brand-name medication is $9.85.
Medicare Extra Help offers financial assistance with monthly premiums, annual deductibles, and copay costs related to prescription medications. Eligibility is income-based. Those who receive Medicare Extra Help will not enter the donut hole.
For more information on Medicare and the donut hole, we suggest exploring the following resources.
- www.medicare.gov - includes live chat and 1-800-MEDICARE (1-800-633-4227)
- The Medicare and You Handbook - includes key deadlines for enrollment and details on coordinating third party coverage from former employers, the military, and Veterans Affairs.
- The Medicare Plan Finder - a trusted source for comparing Medicare coverage options.
Lowering the cost of your medications
Your choice of pharmacy can significantly impact the cost of your medications. At Alto, we prioritize your financial wellness alongside your physical health. Here are some ways we go above and beyond to ensure that you’re receiving your medications at the lowest price possible.
- We research all your pricing options once we receive a prescription. If it is cheaper to pay cash for your medications, separate from insurance benefits, we’ll let you know so that you can make an informed choice.
- We automatically search for potential sources of savings like manufacturer coupons, patient assistance programs, and copay cards and apply them when applicable. If we find any options that require you to apply directly with the program or manufacturer, we’ll let you know.
- We continue searching for less expensive medication options even after we’ve researched savings opportunities, coordinating with your doctor to evaluate these options.
To get started or learn more about Alto, call 1-800-874-5881 or reach out through in-app messaging.
This content is not intended to be a substitute for professional medical advice, diagnosis, or treatment. Always seek the advice of your physician or another qualified health provider with any questions you may have regarding a medical condition.