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 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 2021, the out-of-pocket spending threshold will increase by $200, from $6,350 to $6,550. 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 $6,550 not counting premium costs. At this point, catastrophic coverage begins, and the beneficiary pays either five percent of qualified costs, or a copayment of $3.70 for a generic or preferred drug and $9.20 for other drugs, whichever is greater, for the remainder of the year.