Haris Ashley
The Medicare donut hole, or the Medicare Part D coverage gap, was a term used to describe the prescription coverage gap in Medicare Part D. This gap in prescription drug coverage affected the out-of-pocket expenses paid for medications. In 2024, the donut hole was replaced with a spending cap of $2,000, after which individuals won't have to pay out of pocket for drugs for the rest of the year. This new cap helps lower out-of-pocket costs, encouraging beneficiaries to continue taking their medications.
| Characteristics | Values |
|---|---|
| Description | A gap in prescription drug cover for people with Medicare Part D |
| Alternative Names | Coverage gap, Part D donut hole, Medicare Part D coverage gap |
| Cause | The way a person needed to pay for coverage |
| Effect | Many people stopped taking their medications as they couldn't afford the high costs of the drugs |
| Discounts | 75% on generics, 70% on brand-name drugs, 5% on brand-name drugs |
| Donut Hole Exit Point | Reached when the 70% discount from the drug manufacturer and the 25% paid by the consumer added up to the yearly limit |
| Replacement | Out-of-pocket spending cap of $2,000 |
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What You'll Learn
The donut hole was a coverage gap for prescription drugs
The "donut hole" was a term used to describe a gap in prescription drug coverage for people with Medicare Part D. This gap in coverage led to increased out-of-pocket expenses for prescription medications. The donut hole was not a fixed cost but rather a range within which an individual's expenses would be affected.
Once an individual's out-of-pocket expenses for prescription drugs reached a certain threshold, they entered the donut hole. At this point, they would have to pay more for their prescriptions until they reached another specified amount, at which point their plan would resume funding. This second specified amount was known as the catastrophic coverage threshold, after which individuals only needed to pay about 5% of the cost of their prescription drugs.
The issue with the donut hole was that many people in the United States stopped taking their medications upon reaching it because they could not afford the high costs of the drugs. The specific amounts for entering and exiting the donut hole varied depending on the Part D plan chosen and the amount spent on prescription medications. In 2024, individuals entered the donut hole once they spent $5,030 on covered drugs and did not exit it until they spent at least $8,000.
The donut hole was closed as of January 1, 2025, and replaced with an out-of-pocket spending cap. This means that once an individual reaches a spending limit of $2,000 on prescription drugs, they will no longer have to pay anything for their prescriptions for the rest of the year. This change was implemented as part of the Inflation Reduction Act to simplify coverage and reduce out-of-pocket costs.
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It described how Part D drug coverage changed in a plan year
The term "donut hole" refers to the way a person with Medicare Part D needed to pay for coverage. It was a coverage gap for prescription drugs, where a person paid a specified amount for their prescription drugs, and once they met this deductible, their plan took over the funding. However, when the plan had paid up to a specified limit, the person had reached the donut hole. Once they entered the donut hole, they had to start paying more out of pocket for the cost of their prescriptions until they reached another specified amount. This gap in prescription drug coverage affected the majority of Medicare members, often increasing the out-of-pocket expenses that beneficiaries paid for their medications.
In 2024, the donut hole was replaced with a spending cap. This meant that individuals paid no more than 25% of the price for brand-name drugs, and the nearly full price of the drug counted toward getting them out of the coverage gap. In 2025, the Medicare Part D provisions of the Inflation Reduction Act took effect, requiring all Medicare prescription drug plans to offer a new payment option for enrollees. A new out-of-pocket spending cap of $2,000 effectively replaced the donut hole. This means that once an individual reaches a spending limit of $2,000, they enter catastrophic coverage and no longer have to pay anything for their prescriptions for the rest of the year.
The closing of the donut hole helped make way for three new Part D stages. Many Part D plans now have a deductible, an amount that must be met each year before Medicare begins paying for prescription drugs. This new cap helps to give some Part D beneficiaries lower out-of-pocket costs, which may encourage them to continue taking their medications.
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It was replaced by a spending cap of $2,000 in 2025
The Medicare Part D donut hole was a term used to describe the prescription coverage gap. In other words, it was a gap in prescription drug cover for people with Medicare Part D. When an individual's out-of-pocket spending reached a certain amount, they would enter the donut hole, and have to start paying for their medications again. This was a problem for many people in the US, who would stop taking their medications upon reaching the donut hole because they could not afford the high costs of the drugs.
The donut hole was closed on December 31, 2024, and replaced with an out-of-pocket spending cap of $2,000 on January 1, 2025. This means that when an individual reaches an out-of-pocket expense of $2,000, they will no longer have to pay anything for their prescription drugs for the rest of the year. This new cap will help to give some Part D beneficiaries lower out-of-pocket costs, which may encourage them to continue taking their medications.
The closing of the donut hole helped to make way for three new Part D stages: the deductible phase, the initial coverage phase, and the catastrophic coverage phase. Many Part D plans will have a deductible, which is an amount that must be met each year before Medicare will begin paying for prescription drugs. After this, the individual enters the initial coverage phase, where they pay a percentage of the cost as coinsurance. Finally, once an individual reaches the new spending cap of $2,000, they enter the catastrophic coverage phase, where they no longer have to pay out-of-pocket costs for covered Part D drugs for the rest of the calendar year.
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The donut hole was closed by the Affordable Care Act
The Medicare donut hole was a term used to describe a gap in prescription drug coverage for people with Medicare Part D. This gap in coverage meant that, after the beneficiary paid a deductible, they would pay 25% of the cost of their prescription drugs up to a certain dollar amount, then 100% of the cost up to another specified limit, after which more robust coverage would kick in and they would pay 5% of the cost or a nominal copay. This gap in coverage was problematic because many people in the United States stopped taking their medications upon reaching the donut hole due to high costs.
The Affordable Care Act (ACA), passed in 2010, included a provision to phase out the coverage gap for both brand-name and generic drugs by 2020. This provision gradually closed the donut hole over several years, with the gap being completely eliminated in 2025. The closing of the donut hole was very popular with the public, as it eased the medication affordability crisis for beneficiaries, resulting in billions of dollars of savings in drug costs.
The ACA is deeply intertwined with Medicare, with over 165 provisions affecting the program. Many of these provisions have helped beneficiaries and strengthened Medicare's financial well-being. For example, the ACA's expansion of Medicaid has provided additional coverage for Medicare beneficiaries, and the law has also made it easier for people to switch Medicare plans if they find that their current plan does not meet their needs.
In addition to the changes brought about by the ACA, the Inflation Reduction Act, passed in August 2022, further decreased how much Medicare enrollees have to spend on prescription drug coverage, including for diabetes care. This act eliminated the donut hole as of 2025, replacing it with a deductible phase, an initial coverage phase, and a catastrophic phase during which the enrollee does not have out-of-pocket costs for covered drugs.
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The donut hole led to people stopping their medications
The donut hole, or coverage gap, was a term used to describe the way a person's Medicare Part D drug coverage changed throughout a plan year. This gap in prescription drug coverage affected the majority of Medicare members, increasing the out-of-pocket expenses that beneficiaries had to pay for their medications.
The donut hole was reached when a person's Medicare Part D plan had paid a certain amount toward their prescription drugs in one coverage year. Once in the donut hole, a person had to pay more out of pocket for their prescriptions until they reached a yearly limit. This meant that many people in the United States stopped taking their medications as they could not afford the high costs of the drugs. For example, in 2020, Part D enrollees would receive a 75% Donut Hole discount on the total cost of their brand-name drugs purchased while in the Donut Hole, but they would still have to pay the remaining 25%. The U.S. Department of Health and Human Services estimates that more than a quarter of Part D participants stop following their prescribed regimen of drugs when they hit the donut hole.
In 2024, the donut hole was replaced with a spending cap, and as of 2025, the donut hole was officially closed. This new cap means that when a person reaches an out-of-pocket expense of $2,000, they will no longer have to pay anything for their prescription drugs for the rest of the year. This new cap helps to give some Part D beneficiaries lower out-of-pocket costs, which may help to encourage them to continue taking their medications.
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Frequently asked questions
The donut hole was a coverage gap for prescription drugs in Medicare Part D. It was a period of consumer payments for prescription medication costs that lay between the initial coverage limit and the catastrophic coverage threshold.
In 2024, you entered the donut hole once you spent $5,030 on covered drugs, and you didn’t exit it until you spent at least $8,000. There were several rules aimed at limiting out-of-pocket costs in the coverage gap. For example, you paid no more than 25% of the price for brand-name drugs.
In 2025, the donut hole was closed and replaced by a new spending cap of $2,000, after which you won’t pay out of pocket for drugs anymore. This new cap helps to give some Part D beneficiaries lower out-of-pocket costs, which may help to encourage them to continue taking their medications.
The term donut hole referred to the way a person needed to pay for coverage. A person paid a specified amount for their prescription drugs, and once they met this deductible, their plan took over the funding. However, when the plan had paid up to a specified limit, the person had reached the donut hole.
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