However, your actual savings in the 2021 Donut Hole will depend on several things including:
(1) How much you spent personally (out-of-pocket) on your formulary drugs before reaching the Donut Hole portion of your Medicare Part D prescription drug coverage.
(2) How much you spend on generic drugs vs. brand-name medications while in the 2021 Donut Hole (reminder: while you are in the 2021 Donut Hole, you will receive a 75% discount on all formulary drugs). Keep in mind that you get credit for 95% of the brand-name drug purchase costs toward meeting your 2021 out-of-pocket threshold limit (or TrOOP) of $6,550. The 95% includes the 70% discount paid by the brand-name drug manufacturer and the 25% paid by you. The 5% discount paid by your Medicare Part D plan does not count toward TrOOP. You only get 25% credit toward exiting the Donut Hole on generic drug purchases -- this is the 25% you paid, not the 75% paid by your Medicare Part D plan.
Here is an example showing how to estimate your savings with the Donut Hole discount. To make the example simpler, we are assuming:
(1) Your Medicare Part D prescription drug plan has the standard $445 Initial Deductible (many people are enrolled in a Part D plan with a $0 deductible).
(2) Your plan has a standard 25% co-insurance cost-sharing (this means that you pay 25% of the retail cost of a medication and the plan pays the other 75%). In reality, your Medicare Part D drug plan may have a fixed co-pay amount for all the drug tiers (such as Tier 1 drug co-pays are $8), instead of cost-sharing that is a percentage of your drug's retail cost.
(3) You purchase only brand-name medications while in the Donut Hole.
(4) You spend your way through your entire Coverage Gap or Donut Hole by meeting the $6,550 out-of-pocket threshold or TrOOP.
Based on these assumptions, the amount that you could save with the 2021 Donut Hole discount would be about 4,082.20 (or 75% of $5,442.94).
And here is our math along with a few more assumptions:
- Your 2021 Medicare Part D Initial Deductible: $445.
- The standard 2021 Initial Coverage Limit: $4,130 (or the total retail drug cost).
- You have a 25% cost-sharing -
so, of the $4,130, you pay $921.25 during the Initial Coverage phase (.25 x ($4,130 - $445)).
- The remaining balance you need to reach the 2021 Donut Hole exit point or TrOOP threshold of
$6,550 is $5,183.75 ($6,550 (TrOOP) - $921.25 (after deductible cost) - $445 (deductible cost).
- If you purchase $5,183.75 in brand-name drugs while in the
Donut Hole you get the 75% Donut Hole discount on your purchases, so
you pay $1,295.94 (.25 x $5,183.75) -- and you only get credit
for $4,924.56 toward meeting the $6,550 TrOOP threshold or Donut Hole
exit point (not the full $5,183.75, but 95% of the retail cost).
- Therefore, since you only get credit for 95% of your brand-name prescription purchases while in the Donut Hole,
you calculate your new Donut Hole exit point by dividing the coverage gap spending amount
($5,183.75) by.95 for a total of $4,924.56. Or you can look at it as
-- you actually have to buy $259.19 more in medications to meet your TrOOP threshold and this extra
amount accounts for the discount paid by your plan (because you do not get
credit toward TrOOP for the amount paid by your plan).
- We would estimate your Donut Hole savings as then 4,082.20 or
($5,183.75 + $259.19 = $5,442.94) x 75%.
- If you had a Medicare Part D $0 Initial Deductible,
your savings would be $4,345.03 or $262.83 more in savings as compared to a Medicare Part D plan
with the standard $445 Initial Deductible.
For more information, you can click here to see how the Donut Hole discount has increased over the years -- and the Donut Hole is now considered “closed”.
See our FAQ #530 for examples of the maximum Donut Hole Discount savings for other plan years or see our Blog for more about Donut Hole discounts.
Our 2021 PDP-Planner (or Donut Hole Calculator) is available to illustrate your monthly estimated costs for 2021. Several examples are available to help you get started. Click here for an example of a Medicare beneficiary with relatively high monthly prescription drug costs (a retail drug cost of $800 per month). Spoiler Alert: Even though your retail drug costs in this $800/month example are $9,600 per year, you would pay about $2,731 out-of-pocket (not counting your monthly premiums) when using your Medicare Part D plan.
You can also click on the following link to learn more about the 2021 Medicare Part D drug coverage.