Costs in the coverage gap

Through 2024, most Medicare drug plans have a coverage gap (also called the "donut hole"). This means there's a temporary limit on what the drug plan will cover for drugs.

Because of the prescription drug law, the coverage gap ends on December 31, 2024.

New for 2025: $2,000 cap on covered Part D drugs

Starting in 2025, all Medicare plans will include a $2,000 cap on what you pay out-of-pocket for prescription drugs covered by your plan. If your out-of-pocket spending on covered drugs reaches $2,000 (including certain payments made on your behalf, like through the Extra Help program), you’ll automatically get “catastrophic coverage.” That means you won’t have to pay out-of-pocket for covered Part D drugs for the rest of the calendar year. If you have a Medicare plan with drug coverage, compare plans during Medicare Open Enrollment (October 15 – December 7) to make sure your plan covers the drugs you take and meets your needs.

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Under the standard drug benefit, once you and your drug plan have spent $5,030 on covered drugs in 2024, you're in the coverage gap. Not everyone will enter the coverage gap (people with Medicare who get Extra Help paying Part D costs don’t have a coverage gap). You won’t exit the coverage gap and get catastrophic coverage unless your out-of-pocket spending reaches $8,000.

Brand-name prescription drugs

In 2024, once you reach the coverage gap, you'll pay no more than 25% of the cost for your plan's covered brand-name prescription drugs. You'll pay this discounted rate if you buy your prescriptions at a pharmacy or order them through the mail. Some plans may offer you even lower costs in the coverage gap. The discount will come off the price that your plan has set with the pharmacy for that specific drug.

Although you'll pay no more than 25% of the price for the brand-name drug, almost the full price of the drug will count as out-of-pocket costs to help you get out of the coverage gap. What you pay and what the manufacturer pays (95% of the cost of the drug) will count toward your out-of-pocket spending. Here's a breakdown:

Of the total cost of the drug, the manufacturer pays 70% to discount the price for you. Then your plan pays 5% of the cost. Together, the manufacturer and plan cover 75% of the cost. You pay 25% of the cost of the drug.
There’s also a dispensing fee. Your plan pays 75% of the fee, and you pay 25% of the fee.

What the drug plan pays toward the drug cost (5% of the cost) and dispensing fee (75% of the fee) aren't counted toward your out-of-pocket spending.

Example
Mrs. Anderson reaches the coverage gap in her Medicare drug plan. She goes to her pharmacy to fill a prescription for a covered brand-name drug. The price for the drug is $60, and there's a $2 dispensing fee that gets added to the cost, making the total price $62. Mrs. Anderson pays 25% of the total cost ($62 x .25 = $15.50).

The amount Mrs. Anderson pays ($15.50) plus the manufacturer discount payment of $42 ($60 x .70 = $42) count as out-of-pocket spending. So, $57.50 counts as out-of-pocket spending and helps Mrs. Anderson get out of the coverage gap. The remaining $4.50, which is 5% of the drug cost ($3) and 75% of the dispensing fee ($1.50) paid by the drug plan, doesn't count toward Mrs. Anderson's out-of-pocket spending.

If you have a Medicare plan that already includes coverage in the gap, you may get a discount after your plan's coverage has been applied to the drug's price. The discount for brand-name drugs will apply to the remaining amount that you owe.

Generic drugs

In 2024, Medicare will pay 75% of the price for generic drugs during the coverage gap. You'll pay the remaining 25% of the price. The coverage for generic drugs works differently from the discount for brand-name drugs. For generic drugs, only the amount you pay will count toward getting you out of the coverage gap.

Example
Mr. Evans reaches the coverage gap in his Medicare drug plan. He goes to his pharmacy to fill a prescription for a covered generic drug. The price for the drug is $20, and there's a $2 dispensing fee that gets added to the cost. Mr. Evans will pay 25% of the plan's cost for the drug and dispensing fee ($22 x .25 = $5.50). The $5.50 he pays will be counted as out-of-pocket spending to help him get out of the coverage gap.

If you have a Medicare plan that already includes coverage in the gap, you may get a discount after your plan's coverage has been applied to the drug's price.

Items that count toward (and through) the coverage gap

Your yearly deductible , coinsurance, and copayments
The discount you get on brand-name drugs in the coverage gap
What you pay toward the pharmacy dispensing fee
What you pay in the coverage gap

Items that don't count toward and getting through the coverage gap

The drug plan premium
What the plan pays toward the pharmacy dispensing fee
What you pay for drugs that aren’t covered

If you think you should get a discount

If you think you've reached the coverage gap and you don't get a discount when you pay for your brand-name prescription, review your next "Explanation of Benefits" (EOB). If the discount doesn't appear on the EOB, contact your drug plan to make sure that your prescription records are correct and up-to-date.

If your drug plan doesn't agree that you're owed a discount, you can file an appeal.