For example...
When you are in your Medicare Part D plan's Initial Coverage Phase and use your Medicare Part D plan, you usually pay a certain price for your drug that is less than or equal to the drug's retail price.
For instance, you may use the brand-name drug ADVAIR DISKUS MIS 250/50. If ADVAIR DISKUS MIS is covered by your Medicare Part D plan, you may pay around $47 (or $42 or 20% of retail or another co-payment, depending on your Part D plan). However, the negotiated retail price of the medication may actually be around $400. So, in this example, your Medicare Part D plan will pay the difference between your co-payment of $47 and the plan's negotiated retail cost of $400.
In this example, the $400 plan's retail cost counts toward reaching the plan's Initial Coverage Limit ($5,030 in 2024) and this is the entry point into the Coverage Gap or Donut Hole. The $47 co-pay that you paid counts toward your out-of-pocket cost. Non-formulary drug purchases do not count toward reaching the Donut Hole
If the ADVAIR DISKUS MIS 250/50 was not on your Medicare Part D plan's formulary or drug list, the drug purchase would not be covered by your Medicare Part D plan, and you would pay about $400 or more at the pharmacy. And this $400 expense would not count toward entering the Donut Hole - and the $400 would not count toward your total out-of-pocket spending.
Bottom Line: Only the retail price of drugs covered by your Medicare Part D plan are counted toward reaching the Coverage Gap.
To help you visualize the phases of your Medicare Part D prescription drug plan coverage,
we have a Donut Hole Calculator or PDP-Planner
online illustrating how your retail drug costs move you through the phases of your Medicare Part D coverage and your estimated monthly out-of-pocket costs based on the standard Medicare Part D plan limits.
Important Update: 2024 is the last year for the Coverage Gap or Donut Hole.Starting in 2025, the Donut Hole will be eliminated from Medicare Part D coverage.
Starting in 2025, the Inflation Reduction Act (IRA) eliminates the Coverage Gap (Donut Hole). In 2025 and beyond, Medicare Part D beneficiaries will stay in the Initial Coverage phase until their out-of-pocket spending for Part D formulary drugs (TrOOP) reaches the maximum out-of-pocket spending limit for Part D formulary drugs (RxMOOP) - which is set at $2,000 for 2025. After reaching RxMOOP, Medicare Part D beneficiaries will enter Catastrophic Coverage and have a $0 copay (no additional costs) for all formulary Medicare Part D drugs through the remainder of the year.
2025 Medicare Part D coverage
