Medicare - A Detailed Guide
The Donut Hole Explained
Whether you get your prescription drugs through a Medicare Advantage plan with prescription drugs or through a stand-alone Part D plan, there are some gaps in coverage that you need to be aware of. These gaps are commonly referred to as "the donut hole."
When you get a prescription drug plan, there are 3 different stages of coverage. Let's take a look at them. All numbers mentioned below are for the 2023 calendar year.
Stage 1 - Regular Coverage
This is the easiest stage to understand. All of your copays and coinsurance will be exactly what the prescription drug plan that you purchased specifies. For example, if your co-pay for generic drugs is $10, that will continue as long as your are in this stage. Once the total cost of your drugs reach $4,660 for the year (Total Cost of Drugs = what you pay + what the insurance company pays), you will enter Stage 2.
Stage 2 - The Donut Hole
Once the total cost of your drugs for the year has reached $4,660, you have entered Stage 2 of your coverage (aka The Donut Hole). When you are in the donut hole, you will pay 25% of the cost for all of your drugs. For example, if the total cost of a drug is $100, you will pay $25. You will pay this even if your plan previously had you pay a $10 co-pay. This 25% coinsurance will continue until your total cost of drugs for the year (Total Cost of Drugs = what you pay + what the insurance company pays) reaches $7,400. At this point, you will enter Stage 3.
Stage 3 - Catastrophic Coverage
Once the total cost of your drugs for the year has reached $7,400, you are out of the donut hole and you have entered Stage 3 of your coverage. During catastrophic coverage, you will pay 5% of the cost for each of your drugs, or $3.95 for generics and $9.85 for brand-name drugs (whichever is greater) for the remainder of the calendar year.
The calendar year runs from January 1st to December 31st each year regardless of when you got your prescription drug coverage. It is impossible to avoid the donut hole by changing plans in the middle of the year.