You will receive a 75% discount on all formulary drugs if you reach the Donut Hole or Coverage Gap.

Changes coming to the Medicare Part D Donut Hole.

Spoiler Alert:  In 2025, the Inflation Reduction Act eliminates the Donut Hole or Coverage Gap and limits a Medicare Part D plan member's out-of-pocket costs for formulary drugs to $2,000 (RxMOOP). The RxMOOP can change every year after 2025.  You can read more in the updates below.

A short history of the Donut Hole Discount.
Starting back in the 2011 Medicare Part D plan year, a discount or coinsurance (cost-sharing) was introduced to reduce the cost of generic and brand-name prescription drugs purchased by Medicare beneficiaries once they entered the Coverage Gap (or Donut Hole / Doughnut Hole) portion of their stand-alone Medicare Part D prescription drug plan (PDP) (or Medicare Advantage plan that included prescription drug coverage (MAPD)).

The Donut Hole discount applies only to people who are not eligible for the Medicare Part D Extra Help program or Low-income Subsidy (LIS).  (Note:  People who qualify for LIS (the Low-Income Subsidy or Extra Help) do not have a Coverage Gap in their Part D plan.)

Over the years, the Donut Hole discount increased providing more coverage for formulary drug purchases in the Donut Hole.  Please see the charts below for Donut Hole discounts from 2011 up to 2020.
 
Now if you reach the Donut Hole phase of your Medicare prescription drug plan and your medication is on your plan's formulary and you are not receiving financial Extra Help (LIS):

• You can take advantage of the 75% discount on all formulary drugs.  (You pay 25% of your plan's negotiated retail cost for any formulary drug purchases made while in the Coverage Gap.)

To reemphasize: The Donut Hole discount is not available to anyone receiving financial Extra Help (the Low-Income Subsidy).   Also, the Donut Hole discount is only for Medicare Part D drugs included on your Medicare prescription drug plan's formulary or drug list.  If you buy a non-Part D drug or purchase a non-formulary drug, you will not receive the Donut Hole discount.

Question:  But I thought the Donut Hole closed?

Although we say that the Donut Hole "closed" in 2020 -- because you receive a 75% discount on all formulary drugs purchased in the Donut Hole (paying the same 25% cost-sharing as the standard Medicare Part D plan coverage before the Donut Hole) -- the Donut Hole did not go away and the Coverage Gap remains the third phase of your Medicare Part D coverage.

So you still leave the second phase of your Medicare Part D plan or Initial Coverage Phase once your retail drug costs exceed the Initial Coverage Limit (ICL)  And when you leave your Initial Coverage Phase, you will enter the Coverage Gap (Donut Hole) where the cost of your formulary medications can actually increase, decrease, or stay the same - depending on your Medicare plan, your cost-sharing, and the drug's retail price (see the examples below for more information).

The 75% Generic Drug Donut Hole Discount:

The generic drug discount increased each year starting at 7% in 2011 until the plan year 2020 (and beyond) when you get a 75% discount, so the coinsurance for generics in the Coverage Gap is 25%.  The following table shows how the annual generic drug discount increased:

Generic Drug Discount
Plan Year	Beneficiary Cost-Sharing	Plan Cost-Sharing
2011	93%	7%
2012	86%	14%
2013	79%	21%
2014	72%	28%
2015	65%	35%
2016	58%	42%
2017	51%	49%
2018	44%	56%
2019	37%	63%
2020 and beyond	25%	75%

How does this affect my drug plan coverage?
You get credit toward exiting the Donut Hole for the portion of your generic drug costs that you actually paid -- see the Beneficiary Cost-Sharing column in the chart above.

The 75% Brand-name Drug Donut Hole Discount

The brand-name drug discount began in 2011 at 50% and increased to 75% in 2019 (and beyond). Once again, you pay 25% for your drug purchases made while in the Donut Hole.

Brand-Name Drug Discount
Plan Year	Beneficiary Cost-Sharing	Plan Cost-Sharing	Manufacturer Cost-Sharing
2011	50%	0%	50%
2012	50%	0%	50%
2013	47.5%	2.5%	50%
2014	47.5%	2.5%	50%
2015	45%	5%	50%
2016	45%	5%	50%
2017	40%	10%	50%
2018	35%	15%	50%
2019	25%*	5%	70%
2020 and beyond	25%	5%	70%

How does this affect my drug plan coverage?
You get credit toward exiting the Donut Hole for the portion of your Donut Hole bran drug purchase that you paid, plus the portion paid by the brand-name drug manufacturer. So in 2019 and beyond, you get credit for 95% of the brand-name drug cost (25% paid by you and 70% paid by the brand-name drug manufacturer.

You can use PDP-Planner.com to estimate your monthly costs based on your drug purchases.

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** Update August, 2022:  Beginning in 2025, the 2022 Inflation Reduction Act will provide Medicare Part D beneficiaries with a $2,000 maximum cap on out-of-pocket spending for Part D formulary drugs (RxMOOP).  In 2025, the $2,000 RxMOOP should be reached when a person purchases Medicare Part D formulary drugs with a retail value totaling $6,230.  Therefore, 2025 Medicare Part D plans will no longer have the Part D Coverage Gap (with the accompanying Donut Hole discount).  The $2,000 RxMOOP can change each year like other Medicare Part D parameters.

With the addition of the $2,000 RxMOOP in 2025, Medicare Part D plans will only have three parts of coverage (or less):  (1) the Initial Deductible (if any) and (2) the Initial Coverage phase that will continue until the plan member's out-of-pocket spending reached $2,000 and (3) the Catastrophic Coverage phase that still exists, however a person reaching Catastrophic Coverage has no additional formulary drug costs for the remainder of the year.


** Update May, 2018:  In the document "American Patients First, The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs (May 2018)", a proposal was made to exclude the manufacturer's Donut Hole discount from the out-of-pocket (TrOOP) calculation.  If this proposal is implemented, research indicates that fewer people will enter the Catastrophic Coverage phase and these people will have higher out-of-pocket spending.  (See also: https://budget.house.gov/wp-content/uploads/2018/06/FY19_Budget-Blueprint-Final.pdf)


* Update February 12, 2018: President Trump signed the Bipartisan Budget Act of 2018 (Pub.L. 115-123) on Friday, February 9, 2018 that effectively "closes" the Coverage Gap for brand-name drugs, with the brand-name Donut Hole discount increasing to 75% in 2019.

A key feature to the new law is that the pharmaceutical industry will be responsible for 70% of the cost of medications in the Coverage Gap, therefore you will receive credit for 95% of the retail drug cost toward meeting your 2019 total out-of-pocket maximum or Donut Hole exit point (the 25% of retail costs you pay plus the 70% drug manufacturer discount - see the next paragraph **).  As a note, since the brand-name drug manufacturer will take on an additional 20% of the retail cost, the Medicare Part D plan's responsibility will decrease to 5% (from the originally planned 20% in 2019 and 25% in 2020 and beyond), the Medicare beneficiaries portion will decrease to 25% (from the original planned 30% in 2019).


Looking for more?  Related questions can be found here:

• If I reach the Coverage Gap and get a Donut Hole Discount on my brand-name drugs purchases, do I still get full retail credit toward meeting my Donut Hole exit point?
  
  
• What do I pay when the purchase of my medications moves me from my regular coverage into the Donut Hole? Do I get coverage from my plan or do I receive the Donut Hole Discount?