Archive: If I am in the Donut Hole and get a 75% discount on my brand-name drugs, what percent of my purchase counts toward exiting the Donut Hole?

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 $420, you will exceed your Medicare Part D prescription drug plan's Initial Coverage Limit ($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 2024, 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 $8,000.

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 2024).

So if you buy a brand-name medication with a $100 retail cost while in the 2024 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 2024, 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 2024 true out-of-pocket threshold (TrOOP or total drug spend) of $8,000. 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 2024 Donut Hole, you will receive a 75% discount and pay $25. The $25 will then count toward meeting your 2024 TrOOP threshold of $8,000.

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) ($8,000 in 2024) and enter the Catastrophic Coverage portion of your 2024 Medicare plan, where you will pay nothing ($0) for your formulary drug purchases for the remainder of the year.

Keep in mind that 2023 was the last year that Medicare Part D beneficiaries paid cost-sharing in the Catastrophic Coverage phase. For plan year 2024, the Inflation Reduction Act (IRA) eliminated beneficiary cost-sharing in the Catastrophic Coverage phase.

You can read more about the Donut Hole Discount in our FAQs or in our on this site articles.