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How Does Coverage Gap Work in Medicare Part D?

The Medicare coverage gap, also known as the "donut hole," is a feature of Part D of the program, which covers prescription drugs. If you enroll in Medicare Part D, you must pay an annual premium over and above the amount you pay for other insurance plans offered by Medicare for medical and hospital services. The coverage gap creates higher costs for those who enroll in the plan, but laws passed by Congress will eventually end this feature.

  1. Deductibles

    • If you choose a Medicare Part D plan with a deductible amount, the plan requires you to pay up to the first $310 of prescription drug costs every year. After this deductible amount is met, the plan pays 75 percent of the cost of covered prescription drugs, and you pay 25 percent.

    The Coverage Gap

    • This co-pay arrangement continues until the total cost of the prescriptions (not the amount you paid out of pocket) reaches $2,830. At this point a gap in coverage begins, during which you must pay 100 percent of your costs. Some Medicare D plans offer "gap coverage," which helps with payments in the coverage gap but also carry higher premiums.

    Catastrophic Coverage

    • When your costs out of pocket reach $4,500, including co-pays and deductible, the coverage gap comes to an end. The plan reaches the "catastrophic coverage" amount and picks up most of the cost of prescriptions that follow during the rest of the year.

    Further Out-of-Pocket Expenses

    • After the coverage gap is passed, you pay $2.40 for each generic prescription drug and $6 for brand-name, nongeneric drugs, up to 5 percent of the cost, whichever is higher. With the rise in prescription drug costs, the majority of prescriptions now incur the 5 percent charge.

    Ending the Gap

    • The health care reform law passed in March 2010 made some changes to the coverage gap. Anyone who reaches the coverage gap automatically receives a rebate check from Medicare in the amount of $250. In 2011 and afterward, if you are in the coverage gap you may take 50 percent off the cost of brand-name prescription drugs and 7 percent off the cost of generics. Eventually, by the year 2020, payments in the coverage gap will fall from 100 percent to 25 percent of the drug cost.

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