Donut Hole (Medicare)

The donut hole, officially called the Medicare Part D coverage gap, is a phase of Medicare prescription drug coverage where, historically, you paid a higher share of your drug costs. It kicks in after you and your plan have spent a certain combined amount on covered drugs, and it lasts until you reach the catastrophic coverage threshold.

Under the Inflation Reduction Act, the donut hole has been effectively closed for most beneficiaries. Starting in 2025, Medicare Part D enrollees benefit from a $2,000 annual out-of-pocket cap on prescription drug costs. Once you've spent $2,000 out of pocket on covered drugs, you pay nothing for the rest of the year. This was a major change. Previously, there was no hard cap on drug spending in the donut hole or even in catastrophic coverage.

The donut hole concept is still relevant for understanding how Part D coverage phases work. Part D has four phases: the deductible phase, initial coverage phase, coverage gap (the "donut hole"), and catastrophic coverage. With the $2,000 cap, most beneficiaries will never experience the old donut hole pain of paying steep costs for expensive medications mid-year.

If you're on Original Medicare with a Part D plan, or a Medicare Advantage plan that includes drug coverage, the $2,000 cap applies to you. This protection is especially important for people taking brand-name or specialty drugs that previously pushed them deep into the donut hole.