Medicare Part D was originally designed to cover the majority of a beneficiary’s prescription drug costs. Of course, each individual’s need for medications are different, so some people end up with costs that exceed limits of their Part D plan.
This situation creates a coverage gap for some beneficiaries, as they reach their annual coverage limits and then have to pay out of pocket in the middle of the coverage year. This coverage gap is often called the “Part D Donut Hole”.
Through 2024, most Medicare drug plans have a coverage gap (also called the “donut hole”). This means there’s a temporary limit on what the drug plan will cover for drugs.
Because of the prescription drug law, the coverage gap ends on December 31, 2024.
New for 2025: $2,000 cap on covered Part D drugs
Starting in 2025, all Medicare plans will include a $2,000 cap on what you pay out-of-pocket for prescription drugs covered by your plan. If your out-of-pocket spending on covered drugs reaches $2,000 (including certain payments made on your behalf, like through the Extra Help program), you’ll automatically get “catastrophic coverage.” That means you won’t have to pay out-of-pocket for covered Part D drugs for the rest of the calendar year. If you have a Medicare plan with drug coverage, compare plans during Medicare Open Enrollment (October 15 – December 7) to make sure your plan covers the drugs you take and meets your needs.
Medicare Part D Works in 4 Stages
To understand how the Donut Hole happens, you must learn how Part D coverage works each year. Coverage occurs across four stages, and you might fall into the Donut Hole depending upon how much of your coverage you use.
Stage One: begins on January 1st, the beginning of your coverage year. During this stage you are responsible for paying your prescription drug costs, up until you reach your plan deductible, which is $545 for 2024.
Stage Two: begins when you’ve reached your deductible. At this point you are responsible only for co-pays each time you fill a prescription.
Stage Three: begins when you and your plan (combined) have spent $5030 (2024) on prescription drugs for the year (including the deductible) You’re now in the Donut Hole, and you will pay a percentage toward each of your medications.
Stage Four: of Part D coverage is known as Catastrophic Coverage. Once you spend up to a threshold of $8000 for the year (2024), you move into this stage. Part D now covers 95 percent of the cost of your prescriptions, and you are responsible for just 5 percent.
Find out more thru Medicare.gov