What is a Medicare 'Donut Hole'?

If you have a Medicare prescription drug plan, or Medicare Part D, you’ve probably heard the term “Donut Hole.” (No, we are not talking about the sweet delicious treat!) The donut hole is actually another way of explaining the coverage gap, which is a temporary time when most members may pay a slightly higher coinsurance for your prescription medications.

The easiest way to understand the donut hole is to recognize the four stages of your drug coverage. This will also help you keep track of your share of the cost for your prescription drugs.

The first stage is the deductible phase. During this phase, you pay a specified amount before your prescription drug plan will kick in, but this amount may vary, depending on your plan. The standard deductible changes every year. For 2020, the initial deductible is $435. Some plans may have a deductible on only certain drug categories, and some may not have a deductible at all.

Stage two is the initial coverage phase. After you reach your deductible, you’ll start paying a copay or coinsurance called a ‘cost share’ for covered medication. After you and your insurance plan spend a certain amount here - $4,020 for 2020 - you move onto the next stage.

Stage three is the donut hole phase - or coverage gap phase. This phase used to be very expensive. In 2020, you will pay 25% of the cost for both generic and name brand drugs until your plan resets on January 1^st or until you reach a maximum out-of-pocket cost of $6,350. However, some plans may cover 100% of the cost of certain drugs through the coverage gap.

Stage four is known as the catastrophic phase. If you reach the maximum out-of-pocket cost of  $6,350, you’ll leave the donut hole and enter the catastrophic phase. Both generic and brand name drug costs will be significantly lower for the rest of the year.

Now that you know the four stages of your drug coverage, it will be easier to keep track of how much you should be paying for your prescription medications! Remember that the individual dollar amounts you must reach for each phase is subject to change each year. Additionally, remember that no matter where you are in the process at the end of the plan year, your Medicare Part D plan coverage ends on December 31^st and the whole process starts over on January 1^st.