Medicare Donut Hole 2025

Medicare donut hole 2025

There are some big changes coming to Medicare Part D (PDP) plans.  This includes the discontinuation of the Medicare donut hole 2025.  In January 2024, CMS released a draft of the Medicare Part D payment policies.

Starting next year, see what changes are being made to Part D (prescription drug) coverage.

The new design for prescription coverage will consist of three phases of coverage.

1. The first phase will be the “Annual Deductible Phase”.  In this phase the enrollee pays 100% of their prescription drug cost until they meet the deductible of $590.
2. The second phase is the initial coverage or “Standard Coverage Phase”.  This phase is the former initial coverage phase merged with the Donut Hole/Gap phase. During this phase.  Once the enrollee meets the spending threshold(OOP) of $2,000 for CY 2025, they complete this phase of overage and move into the catastrophic phase.
3. The third phase is the catastrophic phase. During this phase of coverage, the enrollee pays no cost sharing for covered Part D drugs.

As you can see, there is no donut hole (coverage gap) phase.  It is merged with the “Standard Coverage Phase”.

Find out about the 2025 Medicare Drug cap

The changes in payment liability

This new plan design includes changes in payment liability of enrollees, plan sponsors, drug manufacturers and CMS.

1. As stated above, in the first phase “Annual Deductible Phase”, the enrollee must pay 100% of the cost for prescription drugs until the deductible amount is met.
2. In the second phase initial coverage “Standard Coverage Phase” enrollees pay 25% coinsurance for covered drugs while the plan sponsor typically pays 65% for  applicable drugs and 75% for all other covered Part D drugs.  Manufacturers usually pay 10% of the cost through the discount program.
3. The third phase “Catastrophic Phase”, enrollees do not pay a cost share for covered Part D drugs.  Drug plan sponsors normally pay 60% of the cost on covered drugs.  Manufacturers pay a discount of about 20% and CMS pays a subsidy equal to 20% of the cost for applicable drugs.  CMS pays about 40% of drug costs for some other Part D drugs.

Click here to learn more about PDP plans

Key points

1. Removal of the Donut Hole/Gap phase – Merging together with the former initial coverage phase now the “Standard Coverage Phase”.
2. There are now only 3 coverage phases: Deductible, Standard & Catastrophic.
3.  The Out of Pocket (OOP) threshold is dropping to $2,000 annually.
4. The end of the Donut Hole/Gap discount program (CGDP) and the start of the Manufacturer Discount Program (Discount Program)changes what drugs get discounts and how they count towards the OOP.  This also changes who is responsible for the cost beyond a set amount.

Watch a YouTube video on Medicare Part D changes

The drug plans will pay similar amounts as in previous years, although a larger part of their responsibility starts much earlier than in previous years.  In other words, drug plans will pay more money on more enrollees overall.

Click here to learn all the details of the Medicare Part D redesign

It is expected that the added costs drug companies incur may result in either higher Part D plan premiums or possibly spread across other MAPD plan costs.

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