Is the Medicare Donut Hole Really Closed?
Wausua WI Buska Retirement Solutions Medicare Donut

You may have heard that the coverage gap for Medicare Part D prescription drug coverage - commonly known as the donut hole - closed in 2020. While it’s true that recent changes should reduce costs for many beneficiaries, the coverage gap still exists, and costs for some prescriptions may increase in the gap.


Medicare Part D Prescription Drug Coverage

Here’s an overview of the four stages of Medicare Part D prescription drug coverage and how prices can vary in the coverage gap. Note that this does not apply to prescription drug coverage offered through Medicare Advantage (Part C) plans.

Stage 1 - Deductible

Most Part D plans have an annual deductible that cannot exceed $445 in 2021. You pay the full negotiated price for your prescriptions until you meet the deductible.

Stage 2 - Coverage

After you meet the deductible, your plan covers part of the cost of your prescriptions. With the standard Medicare model, you would pay 25% of the cost and the plan would pay 75%. However, few plans follow the standard model. Most have varying copays or coinsurance for drugs at different “tiers” - for example, progressively higher copays for generics, preferred brand name drugs, non-preferred brand-name drugs, and very high-cost drugs. This coverage continues until spending by you and your plan reaches the initial coverage limit ($4,130 in 2021, including the deductible).

Stage 3 - Coverage Gap

When you exceed the initial coverage limit, you enter the coverage gap (donut hole). In this stage, you pay 25% of the negotiated retail price for all prescriptions. For generic drugs, your plan pays the other 75%; for brand-name drugs, the drug company pays 70% and your plan pays 5%. If your plan follows the standard Medicare model in which you pay 25% of the cost of all prescriptions, you would see no difference in the coverage gap, so the donut hole would be effectively closed. However, because most plans have different copays or coinsurance for different types of drugs, the 25% of retail price that you pay in the coverage gap may be higher or lower than what you pay during the coverage stage. It could be substantially higher for very high-cost drugs. The good news is that you remain in the coverage gap only until you reach the out-of-pocket spending limit, which is $6,550 in 2021. This includes your out-of-pocket expenses (deductible, copays, and coinsurance) and the 70% paid on your behalf by drug companies; it does not include payments by your plan.

Stage 4 - Catastrophic Coverage

After you reach the out-of-pocket spending limit, you pay a relatively small amount per prescription for the rest of the year: the greater of 5% of the plan’s negotiated retail price or a flat fee ($3.70 for generics, $9.20 for all other drugs in 2021). For additional information on Medicare Part D drug coverage, see medicare.gov/drug-coverage-part-d.


We are not affiliated with, or endorsed by, the federal Medicare program or any other government agency. This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2021 Broadridge Financial Solutions, Inc. Advisory services are offered through Buska Wealth Management, LLC, a Registered Investment Advisor in the state of Wisconsin. Insurance products and services are offered through Buska Retirement Solutions, Inc., an affiliated company. Buska Retirement Solutions, Inc. and Buska Wealth Management, LLC are not affiliated or endorsed by the Social Security Administration or any government agency. All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. The information contained herein is not an offer to sell or a solicitation of an offer to buy the securities, products or services mentioned, and no offers or sales will be made in jurisdictions in which the offer or sale of these securities, products or services is not qualified or otherwise exempt from regulation. The information contained in this material have been derived from sources believed to be reliable, but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed.

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Buska Retirement Solutions

1818 Grand Avenue
Wausau, WI 54403
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