95% of your brand-name drug's retail cost is counted toward exiting the Donut Hole.

If your monthly purchases of formulary medications consistently have a retail value of over $389, you will exceed your Medicare Part D prescription drug plan's Initial Coverage Limit ($4,660 in 2023 and $5,030 in 2024) and enter the Donut Hole portion of your Medicare plan.  Once you reach the Donut Hole or Coverage Gap, you will receive a discount on the retail prices of your brand-name and generic drug purchases.

So in 2023, once you reach the Donut Hole, your brand-name drug purchases will receive a 75% Donut Hole discount (you will pay 25% of retail) and 95% of the brand-name drug price will count toward meeting your true out-of-pocket threshold (TrOOP) or Donut Hole exit point of $7,400 ($8,000 in 2024).

In general, with the brand-name Donut Hole discount, you will receive credit for the 70% brand-name drug manufacturer discount plus the portion of the prescription drug’s retail price you paid (25%) - but, you do not get credit toward TrOOP for the portion of the drug cost paid by your Medicare plan (5% in 2023).

So if you buy a brand-name medication with a $100 retail cost while in the 2023 Donut Hole, you pay $25 and get $95 credit toward exiting the Donut Hole or meeting the $7,400 out-of-pocket threshold.

Again, the additional 5% of the “discount” is paid by your Medicare Part D plan and therefore does NOT count toward exiting the Donut Hole or reaching your out-of-pocket costs (TrOOP).

In 2023, generic drug purchases also receive a 75% Donut Hole discount (you pay 25% of retail) and only your discounted generic drug cost (the 25% you paid) counts toward meeting your 2023 true out-of-pocket threshold (TrOOP or total drug spend) of $7,400.  The 75% Donut Hole discount is paid by your Medicare Part D plan, so you do not get TrOOP credit for this amount.

So if you purchase a generic medication with a retail value of $100 while in the 2023 Donut Hole, you will receive a 75% discount and pay $25. The $25 will then count toward meeting your 2023 TrOOP threshold of $7,400. 

Keep in mind that brand-name drug purchases get the same 75% discount as generic drugs, but more of the drug's retail cost counts toward meeting your TrOOP - so it is possible that a brand-name medication may be more cost effective (get you through the donut hole faster) than a generic alternative - assuming that your Medicare Part D plan covers both the brand-name and the generic equivalent and both medications have similar retail pricing.

Please note, if the retail value of your monthly formulary medication purchases is consistently over $934, you will most likely exceed your Medicare Part D prescription drug plan's total out-of-pocket spending limit (TrOOP) ($7,400 in 2023 and $8,000 in 2024) and enter the Catastrophic Coverage portion of your 2023 Medicare plan, where you will pay around 5% of the retail drug price for the remainder of the year.

Keep in mind that 2023 is the last year that Medicare Part D beneficiaries will pay cost-sharing in the Catastrophic Coverage phase.  For plan year 2024, the Inflation Reduction Act (IRA) of 2022 eliminates beneficiary cost-sharing in the Catastrophic Coverage phase.

You can read more about the Donut Hole Discount in our FAQs or in our Q1Medicare.com articles.