The “donut hole” coverage gap required beneficiaries to pay substantially more for their drugs when they reached a certain level of spending and was included in the standard benefit design of the law that originally established the Medicare Part D program.

Fortunately, the “donut hole” was eliminated in 2020. However, due to the expiration of the Affordable Care Act provision that constrained the growth in out-of-pocket costs, Medicare Part D enrollees faced a relatively large increase in out-of-pocket drug costs before they qualified for catastrophic coverage. In 2020 and beyond, the threshold reverts to the level that it would have been using the pre-Affordable Care Act growth rate calculation. For 2023, the out-of-pocket spending threshold will increase by $350, from $7,050 to $7,400. Beneficiaries will pay 25 percent for brand-name drugs and 25 percent for generics.

The coverage gap ends when a beneficiary has spent a total of $7,400 not counting premium costs. At this point, catastrophic coverage begins, and the beneficiary pays a copayment of $4.15 for a generic script or 5 percent for non-generics with a cost of $83 or more for the remainder of the year.

Beginning in 2024, the Inflation Reduction Act (IRA) (P.L. 107-169) eliminates the 5 percent coinsurance payment in the catastrophic phase of the Part D benefit. In 2025 and thereafter, total patient out-of-pocket costs in Part D will be capped at $2,000.