Understanding Medicare Part D and the Donut Hole

How Much Extra Will You Pay?

Medicare Part D presciption drug donut hole
Medicare's donut hole is confusing and expensive. Peter Dazeley/Photographer's Choice/Getty Images

Medicare Part D began to offer prescription drug coverage in 2006. Before this, seniors had to fend for themselves. The burden for drug costs is high with Americans between 65 and 79 years old filling 27.3 prescriptions per year and those older than 80 years old filling 29.1 prescriptions per year.

Today seniors can pick a Part D plan, pay a monthly premium and make relatively inexpensive copayments or coinsurance payments towards their drug costs.

The problem is that Part D has a coverage gap known as the donut hole and it is not so tasty.

Part D offers coverage up to a certain dollar amount (imagine eating from one side of a donut), then drops coverage (imagine getting to the empty area in the middle) and resumes coverage after a certain amount of dollars have been spent (imagine getting to the other side of the donut).

Each year Medicare sets a coverage limit for the first part of the donut, the pre-donut hole. What you pay and what Medicare pays for your drugs will count towards this cost limit. Your monthly premiums do not count towards these costs nor do medications not covered by your Part D plan or medications purchased from other countries.

Costs That Count Towards Your Pre-Donut Hole Expenses 
Costs You PayCosts That Medicare Pays
  • Your deductible
  • Your copays and coinsurance
The amount Medicare pays for your prescriptions

After you have spent the coverage limit amount, you enter the donut hole.

When Part D first started, you would have been responsive for paying for 100 percent of your drug costs. Now Medicare will pay a certain percentage of the costs and that amount is growing in your favor every year thanks to Obamacare. Obamacare aims to close the donut hole by 2020.

How Much Medicare Pays During the Donut Hole by Year
YearBrand Name DrugsGeneric Drugs
201555 percent35 percent
201655 percent42 percent
201760 percent49 percent
201865 percent56 percent
201970 percent63 percent
202075 percent75 percent

You are stuck in the donut hole until you spend a certain dollar amount that is set every year by Medicare. Pharmaceutical companies will give you a 50 percent discount on brand name medications during the donut hole. Any money spent by your Part D plan does not count towards this amount. Again, your monthly premiums and uncovered or foreign drugs do not count towards the donut hole requirement.

Costs That Count Towards Your Donut Hole Requirement
Costs You PayOthers Costs
  • Coinsurance for brand name medications
  • Coinsurance for generic medications

The amount a pharmaceutical subsidy pays for your brand name medications (not your generic medications)

What your Part D plan pays does NOT count

After you have spent the donut hole amount, you enter a period of catastrophic coverage where you pay inexpensive copays for your medications until the end of the year. On January 1, the process starts all over again.

How Much the Donut Hole Costs by Year
Drug Coverage20152016
Initial Coverage Limit$2,960$3,310
Donut Hole


 ($4,700 in total costs for the year)


($4,850 in total costs for the year)

Catastrophic Coverage
  • You will pay $2.65 for generic drugs.
  • You will $6.60 for brand name drugs.
  • You will pay $2.95 for generic drugs.
  • You will pay $7.40 for brand name drugs.

The donut hole can be a tricky concept to understand. Thankfully by 2020, it will be more simple with closure of the donut hole.


Changes in the Utilization of Healthcare and Medicines. IMS Institute for Healthcare Informatics. http://www.imshealth.com/deployedfiles/imshealth/Global/Content/Corporate/IMS%20Health%20Institute/Reports/US_Use_of_Meds_2013/Percent_population_prescriptions_per_capita.pdf Accessed August 12, 2015.