Medicare Part D Coverage Gap (Donut Hole) Closes in 2020

by  Jared Staheli, MPP
Mar 26th, 2020

The Medicare Part D coverage gap, also known as the “Donut Hole,” describes the period between post-deductible initial coverage (beneficiary responsible for 25% of the drug cost) and catastrophic coverage (beneficiary responsible for 5% of the drug cost). Initially, when Medicare Part D was first implemented in 2006, beneficiaries were responsible for 100% of the cost of the drugs in the coverage gap. When the Affordable Care Act (ACA) passed in 2010, one piece of the legislation aimed to close this coverage gap by 2020 by requiring drug manufacturers to provide a substantial discount on the cost of their drugs. In addition, the Bipartisan Budget Act of 2018 mandated the insurance plans cover a small portion (5%) of spending in the coverage gap. In 2019, the gap closed for brand-name medications - beneficiaries paid 25% of the cost all the way up to the point at which catastrophic coverage began. This year, generic medications will also reach that point, meaning that the coverage gap (from the beneficiary’s perspective) is now officially closed.

However, something to note as the coverage gap finally closes is that the point at which catastrophic coverage kicks in saw its highest ever increase due to the expiration of a provision of the ACA which limited these yearly increases. The catastrophic coverage amount has skyrocketed by nearly 20% to $6,350, up from $5,100 in 2019. Between 2018 and 2019, this increase was only 2%, in line with inflation. This increase reduces the benefits to Medicare beneficiaries that closing the coverage gap provides, but they are still in a much better position than in the pre-ACA days where they were on the hook for 100% of the costs in the gap. The table below outlines the 2020 picture for Part D coverage.

_{* Both insurance plan spending and beneficiary out-of-pocket spending are included here
** The coverage gap still technically exists - but only from the perspective of the insurance plans and drug manufacturers who contribute to reduce the out-of-pocket costs for Medicare beneficiaries and effectively eliminate the gap
*** Both the manufacturer discount and beneficiary out-of-pocket spending are included here
****Income-related monthly adjustment amounts (IRMAA) are applied to beneficiaries with incomes above $87,000 if filing an individual return or $174,000 if filing a joint return}

Though the closing of the coverage gap helps beneficiaries, the continued escalation of drug prices is leading to substantial increases in the number of beneficiaries crossing into catastrophic coverage territory. While different methods of addressing this issue are being explored, there is currently not a permanent fix that protects both Medicare beneficiaries and the fiscal sustainability of the Medicare program. The only long-term solution is to lower drug prices. As price increases continue to plague the healthcare marketplace, including Medicare, it’s time for a bipartisan solution.