You may have heard of the term “donut hole” in reference to Medicare Part D, Medicare’s prescription drug coverage.

The donut hole is a gap in prescription drug coverage during which you may pay more for prescription drugs. You enter the donut hole once your Medicare Part D plan has paid a certain amount toward your prescription drugs in 1 coverage year.

Once you fall into the donut hole, you’ll pay more out of pocket (OOP) for the cost of your prescriptions until you reach the yearly limit. Depending on the type of coverage you choose, when you hit this limit, your plan may help pay for your prescriptions again.

Learn more about the donut hole and how may it affect how much you pay for your prescription drugs this year.

So when exactly does the donut hole begin and end for 2022? The short answer is, that varies depending on the Part D plan you choose and how much you spend on prescription medications. Some people pay less for their medications when they enter the donut hole while others pay (usually only slightly) more.

Here are more facts about the Medicare donut hole.

Initial coverage limit

You enter the donut hole after you surpass the initial coverage limit of your Part D plan. The initial coverage limit includes the total (retail) cost of drugs — what both you and your plan pay for your prescriptions.

After surpassing this limit, you’ll need to pay a certain percentage yourself until you’ve reached what’s called the OOP threshold.

For 2022, the initial coverage limit has increased to $4,430. This is up from $4,130 in 2021. Generally speaking, this means that you’ll be able to get more medications before you fall into the donut hole.

OOP threshold

This is the amount of OOP money that you have to spend before you exit the donut hole.

For 2022, the OOP threshold has increased to $7,050. This is up from $6,550 in 2021, meaning that you’ll have to pay more OOP than before in order to get out of the donut hole.

When you’re in the donut hole, certain things count toward your total OOP cost to exit it. These include:

  • OOP costs for generic and brand-name drugs while in the donut hole
  • discounts on brand-name drugs while you’re in the donut hole, which includes a coverage gap discount plus a manufacturer discount
  • your yearly deductible: $480 in 2022, which is up from $445 in 2021
  • any copayments or coinsurance

Extra Help considerations

Some people enrolled in Medicare qualify for the Medicare Extra Help program based on their income. This program helps people pay for their prescription drug costs.

If you get help from this program, you won’t enter the coverage gap or donut hole.

Originally, being in the donut hole meant that you had to pay OOP until you reached the threshold for more drug coverage. However, since the introduction of the Affordable Care Act, the donut hole has been closing.

There are several changes for 2022 aimed to limit your out-of-pocket costs in the coverage gap. These include:

  • You will pay no more than 25 percent of the price for brand-name drugs.
  • The nearly full price of the drug (more than what you pay out of pocket or 95 percent of its costs) will count toward getting you out of the coverage gap.
  • You are responsible for a dispensing fee for your medicine. Your plan pays 75 percent while you pay 25 percent.
  • The fees that don’t count toward your OOP spending include the 5 percent your plan pays plus the 75 percent toward the dispensing fee your plan pays.

Some plans offer even deeper discounts when you’re in the coverage gap. It’s important to carefully read your plan to see if this is true for you.

Let’s see how this works in some examples below.

Generic drugs

For generic drugs, only the amount you actuallypay counts toward your OOP threshold. For example:

  1. You’re currently in the donut hole and a covered generic drug costs $40 and the dispensing fee is $2.
  2. You’ll pay 25 percent of this cost OOP, which is $10. You’ll pay $0.50 for the dispensing fee.
  3. Only this $10.50 will count toward your OOP costs for exiting the donut hole. The remaining $30 won’t count.

Brand-name drugs

For brand-name drugs, 95 percent of the total medication price will count towards reaching the OOP threshold. This includes the 25 percent that you pay OOP plus a manufacturer discount.

So, as a simple example:

  1. You’re in the donut hole and a covered brand-name drug costs $40. The dispensing fee is $4.
  2. You’ll pay 25 percent of this cost OOP, which is $10. You’ll also pay 25 percent of the dispensing fee or $1.
  3. The manufacturer discount will be 70 percent, or $28. Your plan pays the remaining 5 percent, or $2. They also pay 75 percent or $3 for the dispensing fee.
  4. This totals to $39. This amount of money will count toward your OOP costs for getting out of the donut hole. The remaining $5 won’t count.

What happens after I exit the donut hole?

After you exit the donut hole, you’ll receive what’s called catastrophic coverage. This means that you’ll have to pay whatever is greater for the rest of the year: Five percent of a drug’s cost or a small copay.

The minimum copay for 2022 has increased a little from 2021:

  • Generic drugs: minimum copay is $3.95, which is up from $3.70 in 2021
  • Brand-name drugs: minimum copay is $9.85, which is up from $9.20 in 2021
Choosing Medicare prescription drug coverage

Are you planning on enrolling in a Medicare prescription drug plan? Consider the following before choosing a plan:

  • Use the Medicare website to search for a plan that’s right for you.
  • Compare a Medicare Part D with a Medicare Advantage (Part C) plan. Medicare Advantage plans include health care and drug coverage on one plan and sometimes other benefits like dental and vision.
  • Check that the plan covers your medications.
  • If you take generic drugs, look for a plan that charges a low copayment.
  • If you’re concerned about expenses while in the donut hole, find a plan that provides additional coverage during this time.
  • Make sure that additional coverage includes medications you take.

Medicare Part D is an optional plan under Medicare for coverage of prescription drugs. Insurance providers approved by Medicare provide this coverage.

Prior to Part D, many people received prescription drug coverage through their employer or a private plan. For those who purchase a basic Part D plan in 2022, the estimated average monthly premium is estimated to be $33. This average is slightly higher than 2021’s average monthly premium of $31.47.

Both brand-name and generic drugs are covered in Medicare Part D plans. At least two drugs in commonly prescribed drug categories are included on the list of covered medications, which is called a formulary.

However, the specific drugs covered in your Part D plan can vary from year to year. Your provider can make changes to its formulary throughout the year, as long as it follows certain guideline. This can include things like changing brand-name drugs to generic ones.

Tips for helping a loved one enroll in Medicare

Maybe you’re too young for Medicare, but you’re helping a loved one enroll. Here are some considerations:

  • Know if they’re collecting Social Security benefits. If they are, they’ll automatically be enrolled in parts A and B when eligible. If not, they can sign up for Medicare starting 3 months before their 65th birthday.
  • Be aware of their individual needs. Do they visit the doctor frequently, take several medications, or need additional vision or dental care? Knowing these things can help select an appropriate plan.
  • Be prepared to provide personal information about yourself. Social Security may ask about you and your relationship to the person you’re helping. Your loved one will need to sign the Medicare application when it’s complete.

Is there anything else that can help reduce the cost of prescription medications? Here are six suggestions:

1. Consider switching to generic drugs.

These are often less expensive than brand-name drugs. If you’re taking a brand-name drug, ask your doctor about generic drugs.

2. Think about ordering medications online.

In some cases, this may be more cost-effective. The FDA has a list of tips for safely buying medications online.

3. Choose a plan with additional coverage during the donut hole.

Some Medicare plans may provide additional coverage while you’re in the donut hole. However, you may be subject to higher premiums.

4. Look into state pharmaceutical assistance programs.

Many states offer programs that can help with the cost of your prescriptions. Medicare has a search tool to find programs in your state.

5. Check for pharmaceutical assistance programs.

Many pharmaceutical companies offer assistance programs for people that need help with the cost of their medication.

6. Apply for Medicare Extra Help.

Individuals that have Medicare drug coverage and have limited income and resources may qualify for the Medicare Extra Help program. This helps to pay for premiums, deductibles, and copayments associated with a Medicare drug plan.

The Medicare donut hole is a coverage gap in Plan D prescription coverage. You enter it after you’ve passed an initial coverage limit.

In 2022, you’ll have to pay 25 percent OOP from the time you enter the donut hole until you reach the OOP threshold.

There are a variety of things that you can do to help bring down the cost of prescriptions. These include switching to generic dugs, having extra coverage for the donut hole, or using an assistance program.

When selecting a Medicare prescription drug plan, verify that a plan covers your medications. It’s always a good idea to compare multiple plans to find the one that’s right for your individual needs.