The Medicare Donut Hole

Written by Anny Do | Edited by Danica Kwan

Photo by cottonbro studio

As a part of the Social Security Amendments of 1965, the Medicare health insurance program was introduced by the U.S. federal government to assist individuals ages 65 and older with healthcare costs. In 2006, “Part D” of Medicare included a set of policies to assist individuals with the cost of purchasing prescription drugs. However, despite this intention to create a financial “safety net,” aspects of the plan’s coverage gap have caused patients to feel hesitant about costs and reduce their use of buying medications. This leaves sick patients at risk of further damaging their health.

The “donut hole” analogy is often used to describe the Medicare drug plan, comparing it to the sweetness of the dough of the donut compared to the emptiness of the hole or middle of the donut. Prescription coverage renews annually for all individuals enrolled—a new donut every year. Patients will receive up to full coverage or a low co-pay amount for their prescription purchases until they reach a set cost cap, at which point they will enter the coverage gap—the hole—that will last until an out-of-pocket spending threshold is reached or the start of the next year. 

A Medicare coverage gap is a period during which the regular financial assistance for prescription drugs pauses. In 2024, insured individuals may spend up to $5030 in covered drugs before the cost cap is reached and they enter the coverage gap [1]. While in this gap, patients will pay 25% of full cost for brand-name and generic drugs until their out-of-pocket spending totals $8000. For brand-name drugs, both the 25% that patients pay and the other 75% covered by the health plan and manufacturers will count toward out-of-pocket spending. For generic drugs, only the 25% patient responsibility will count [2]. Thus, purchasing brand-name drugs will help patients reach their out-of-pocket spending faster than purchasing generic drugs. However, generic drugs cost 80-85% less than brand-name drugs [3].

A 2006 study analyzed the effect of the coverage gap on patient drug spending. Of the individuals insured under the Medicare drug plan, 25% reached the cost cap and entered the coverage gap. Of this population, 5% surpassed the out-of-pocket spending limit. Without any coverage, it was observed that patients reduced their use of drugs by 14% [4]. Similarly, in a 2016 research study about the effects of Medicare drug coverage among patients with high blood pressure and fat content, it was observed that the number of blood pressure or fat-lowering prescriptions obtained per patient decreased once patients entered the donut hole, compared to patients who did not have a coverage gap due to a financial aid program [5]. Patients who were more ill reached the gap sooner and expressed hesitancy toward purchasing their needed medications [6].

In an attempt to reduce the negative effects of the coverage gap, an Inflation Reduction Act is set to be implemented in 2025, which will remove the coverage gap. Patients will begin the year with a low co-pay and an out-of-pocket spending amount capped at $2000. After this cap is reached, patients will receive full coverage for their drugs until the start of the next year [7]. There is hope that this new plan will allow patients to spend less for their medications per year and to be more willing to purchase their needed medications, due to less worry about costs.

References:

1. “Home Drug coverage (Part D) Costs for Medicare drug coverage.” Medicare, https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage. 
2. “Costs in the coverage gap.” Medicare, https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage/costs-in-the-coverage-gap. 
3. Pronovost, Peter. “Generic vs. Brand-Name Drugs: Is There a Difference?” University Hospitals, 21 July 2022, https://www.uhhospitals.org/blog/articles/2022/07/generic-vs-brand-name-drugs-is-there-a-difference. 
4. Zhang, Yuting, et al. “The Effects Of The Coverage Gap On Drug Spending: A Closer Look At Medicare Part D.” NCBI, 3 February 2009, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2859617/. 
5. Roumie, Christianne L. “The doughnut hole: it’s about medication adherence.” NCBI, 4 November 2016, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5095698/.
6. Schneeweiss, Sebastian, et al. “The Effect Of Medicare Part D Coverage On Drug Use And Cost Sharing Among Seniors Without Prior Drug Benefits: The introduction of Medicare Part D was a mixed blessing for elderly beneficiaries who didn’t have drug coverage before.” NCBI, 3 February 2009, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2683877/. 
7. Cubanski, Juliette, and Tricia Neuman. Changes to Medicare Part D in 2024 and 2025 Under the Inflation Reduction Act and How Enrollees Will Benefit | KFF, 20 April 2023, https://www.kff.org/medicare/issue-brief/changes-to-medicare-part-d-in-2024-and-2025-under-the-inflation-reduction-act-and-how-enrollees-will-benefit/.