Good-Bye Medicare Part D Donut Hole; Hello $2,000 Cap

Just about any Medicare beneficiary who takes prescription medications has heard about the donut hole. It has had quite an interesting history.

• When Part D prescription drug coverage began in 2006, those who landed in the donut hole had to pay 100% of the cost for every drug. That’s likely the reason that the official name of this Part D drug payment stage is the Coverage Gap. Insurance companies didn’t pay anything in this stage. Some beneficiaries could not afford this, so they quit taking their medications.
• Beginning in 2012, once in the donut hole, there were discounts for drugs. These discounts started at 50% for brand-name medications and 14% for generics.
• Every year after that, discounts gradually increased until the donut hole closed completely in 2020. That didn’t make drugs free; it just made the cost sharing 25% of the drug’s cost, the same as in Initial Coverage. Some beneficiaries were paying $3,500, $4,000, or more in the donut hole.

But things are changing. The Inflation Reduction Act is taking steps to provide financial relief for beneficiaries by lowering drug costs. As of January 1, 2024, the 5% coinsurance in the Catastrophic Coverage payment stage is gone, essentially capping drug costs at $3,300-$3,500. No longer do some beneficiaries face unlimited drug costs. Then, starting in January 2025, the maximum amount anyone with Part D drug coverage will pay for medications will be $2,000. That’s only four months away so this is a good time to get to know the Part D cap.