For example, in 2024, the standard Initial Coverage Limit is $5,030. So, in 2024, if you purchase formulary medications with a negotiated retail cost of over $420 per month, you will enter the Donut Hole sometime during 2024.
Question: But isn't the Donut Hole closed?
Not exactly. Although we say that the Donut Hole "closed" in 2020 since you receive a 75% discount on all formulary drugs, you will still leave your Medicare Part D plan's Initial Coverage Phase once your retail drug costs exceed the Initial Coverage Limit. And when you leave your Initial Coverage Phase, you will enter the Coverage Gap (Donut Hole) where the cost of your formulary medications can increase, decrease, or stay the same - depending on your Medicare drug plan, your cost-sharing, and the drug's retail price. You can click on our FAQ "Did the Coverage Gap or Donut Hole just close up and go away?" to read more.
Important Fact: 2024 is the last year that the Donut Hole will exist.
In 2025 one of the provisions of the Inflation Reduction Act (IRA) of 2022 is the elimination of the Coverage Gap (Donut Hole). Medicare Part D beneficiaries will stay in the Initial Coverage phase until they reach the maximum cap on out-of-pocket spending for Part D formulary drugs - RxMOOP - which is set at $2,000 for 2025. After reaching RxMOOP Medicare Part D beneficiaries will have a $0 copay for all formulary drugs.
Question: What if I use a brand-name formulary drug that costs $1,800 a month?
You will enter the Donut Hole during your third month of coverage. If you purchase a brand-name formulary medication with a negotiated retail cost of $1,800 per month, you will reach your Donut Hole in the third month of your Part D coverage or during your third purchase.
Your third purchase will be calculated as a straddle claim since the cumulative retail cost would now be $5,400 ($1,800 x 3), exceeding your $5,030 Initial Coverage Limit. This purchase would fall in both the Initial Coverage and Donut Hole phases. You would pay your cost-sharing applied in the Initial Coverage phase and the remaining amount $370 ($5,400 - $5,030 = $370) would fall into the Donut Hole where you would get a 75% discount -- you pay $92.50 (25% of $370). The Donut Hole cost-sharing ($92.50) plus the Initial Coverage cost-sharing are added together for this one purchase. Question: Will I exit the Donut Hole when I use an $1,800 drug?
Yes, sometime in month 5. If you continue to purchase the $1,800 drug each month, you would exit the Donut Hole sometime in month five (during your fifth drug purchase) when your true out of pocket costs (TrOOP) exceeds the annual 2024 TrOOP threshold of $8,000. After you exceed the $8,000 out-of-pocket limit, you will enter the Catastrophic Coverage portion of your Medicare Part D plan and you will pay nothing ($0) for formulary drug purchases for the remainder of the year.
Question: How can I calculate my annual drug costs?
You can use our Donut Hole calculator to get an estimate of when you will enter and exit the Donut Hole -- and your monthly costs as you move through your Medicare plan phases. (Please note we show the adjustment for the Donut Hole Discount following the monthly costs chart.)
See our FAQ for examples of the maximum Donut Hole Discount savings for other plan years.
