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Do I just pay 25% of the difference between the $7,050 TrOOP and my Medicare Part D plan's $4,430 Initial Coverage Limit before exiting the 2022 Donut Hole?

Category: The Donut Hole or Coverage Gap
Published: May, 13 2022 03:05:40

No.   When working with a 2022 Medicare Part D plan, there are two related numbers that change every year:
(1) the $7,050 total (or true) out-of-pocket cost (TrOOP) which is a measure of what a Part D beneficiary spends themselves for formulary drugs (or someone spends on the beneficiary’s behalf) and
(2) the $4,430 Initial Coverage Limit (ICL) which is the total retail value of the formulary drugs a person can purchase before entering the plan's Donut Hole or Coverage Gap.

Your $7,050 total out-of-pocket spending limit (2022 TrOOP) only includes the portion of your $4,430 Initial Coverage Limit that you actually paid for your drugs.  The portion of your medication costs paid by your Medicare Part D plan do not count toward your $7,050 TrOOP.

For example, if you buy a formulary drug with a $100 retail cost during the Initial Coverage Phase and you pay $30 (your plan pays the other $70), the $100 retail cost counts toward reaching your $4,430 Initial Coverage Limit and only the $30 you actually spend counts toward meeting your $7,050 TrOOP limit.

Therefore, you cannot simply subtract the Initial Coverage Limit from your TrOOP and apply the 75% Donut Hole Discount to determine how much you will spend while in the Coverage Gap.

Question:  So how much will I personally spend before I exit the Part D Donut Hole?

It depends.  What you spend on Medicare Part D drugs before meeting your annual TrOOP and exiting the Coverage Gap or Donut Hole - and entering Catastrophic Coverage will depend on several things including:
  • Whether your drug plan's has an Initial Deductible (for example, $480 or $0)
  • Your plan's cost-sharing (what you pay for drugs, for example 25% of retail or a fixed co-pay of $30)
  • Your plan's Initial Coverage Limit (the standard for 2022 is $4,430)
  • Your mix of generic and brand-name drugs purchased while in the Donut Hole (Based on overall Part D drug purchases, Medicare predicts that people will use a mix of about 10% generic and 90% brand-name drugs purchased in the Donut Hole)
  • Whether your plan provides any additional coverage while you are in the Donut Hole
For example, assuming that your 2022 Medicare Part D plan has:
  • a standard $480 Initial Deductible,
  • an Initial Coverage Limit of $4,430,
  • fixed cost-sharing of 25% co-insurance (you pay 25% of retail for all formulary drugs),
  • no additional plan coverage in the Donut Hole,
  • and you purchase 91.76% brand drugs and 8.25% generics in the Donut Hole - (Medicare's 2022 drug usage prediction).
Using this information, your estimated total out-of-pocket cost before exiting the 2022 Donut Hole would be around $3,032.
(You spend $480 in the Initial Deductible, $987 in the Initial Coverage Phase, and $1,565 in the Donut Hole.)

Following this example, you will notice that this $3,032 out-of-pocket figure is far lower than your plan's $7,050 TrOOP threshold, and this difference is because your total out-of-pocket spending limit (TrOOP) includes what you spend plus any money that someone has paid on your behalf - and the 70% portion of your 75% brand-name drug Donut Hole discount was paid by the pharmaceutical industry.

So when you purchase brand-name drugs in the Donut Hole you receive a 75% Donut Hole discount on these drugs and also receive 95% of the retail drug price as credit toward reaching TrOOP.

This means that, if you purchase a brand-name drug with a retail cost of $100, you would pay $25 (with your 75% discount) and get credit for $95 (the $25 you pay plus the $70 paid by the pharmaceutical manufacturer) toward your $7,050 TrOOP (you can click here to read more).

So, in our example, your out-of-pocket costs are $3,032, plus the drug manufacturer has paid around $4,018 toward your brand-name Donut Hole discount, and added together, brings you to your plan's TrOOP limit of $7,050.

Question:  How does your total out-of-pocket cost change based your mix of generic and brand-name formulary drugs?

If you are using 100% generics in the Donut Hole . . .

You will pay $7,050 before exiting the Donut Hole.
  Following the same example above, if you are using 100% generics while in the Donut Hole, you can expect to meet the $7,050 TrOOP limit yourself.  You will spend $480 in the Initial Deductible, plus $988 in the Initial Coverage Phase, and $5,582 in the Donut Hole.

If you are using 100% brand-name drugs in the Donut Hole . . .

You will pay $2,937 before exiting the Donut Hole.  If you are using 100% brand-name medications in the Coverage Gap, you will personally spend about $2,937 out-of-pocket to exit the Donut Hole.  You will spend $480 in the Initial Deductible, $988 in the Initial Coverage Phase, $1,469 in the Donut Hole, and the pharmaceutical manufacturer's portion of the brand-name discount would account for the remaining $4,113.

Yes, your Medicare plan's deductible and cost-sharing will also affect what you pay before exiting the Donut Hole.

Also, depending on your chosen Medicare Part D plan's deductible and cost-sharing, you may pay slightly more out-of-pocket before exiting the Donut Hole, (for example, you have a $0 deductible or cost-sharing other than 25% of retail).

Need some help with the math?  You can use our Donut Hole Calculator to determine your out-of-pocket costs.

You can use our PDP-Planner or Donut Hole calculator to estimate your total annual out-of-pocket costs based on your mix of generic and brand drugs or deductible..  Here is an example to get you started: https://q1medicare.com/PartD-DoughnutHoleCalculatorsDonutHole.php?pgtype=ex1

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