If your 2014 Medicare Advantage plan includes prescription drug coverage, then the Donut Hole portion of your coverage works just like a stand-alone Medicare Part D prescription drug plan (or PDP).
(1) You will enter the 2014 Donut Hole based on the total negotiated retail value of your medication purchases. When the total retail cost of your 2014 drug purchases exceeds the 2014 Initial Coverage Limit of $2,850 (not what you paid, but the retail value), you will leave your Medicare plan's Initial Coverage Phase (where you share the cost of your prescriptions with your Medicare plan) and enter into the 2014 Donut Hole.
(2) You will exit the 2014 Donut Hole based on your total out-of-pocket spending. After your actual out-of-pocket spending for covered medications has reached $4,550, you exit the Donut Hole. (Remember, 50% of the brand-name drug discount counts toward meeting this total out-of-pocket spending amount).
Here is how this works:
If you are in your 2014 Medicare Advantage plan's Initial Coverage Phase (before reaching the Donut Hole), and you purchase a medication with a $100 retail cost, and pay your Medicare plan's co-payment (for example, $30) out of your own pocket, and the Medicare plan pays the other $70, you get $30 credit toward the $4,550 Donut Hole exit point and $100 toward your $2,850 Initial Coverage Limit.
When you exceed the Initial Coverage Limit of $2,850, and are in the 2014 Donut Hole, and you buy the same $100 medication, and your Medicare plan does not provide any additional Donut Hole coverage, you will get a 52.5% discount on all brand-name drugs bought in the Donut Hole, or a 28% discount on generic drugs purchased in the Donut Hole.
So if your $100 medication was a brand-name drug, then you will pay only $47.50 - but, you will get credit for $97.50 toward meeting your $4,550 out-of-pocket threshold or Donut Hole exit point.
This $97.50 represents the $47.50 that you paid and the $50 that was paid on your behalf by the brand-name drug manufacturer. You do not get credit for the $2.50 that was paid by your Medicare plan.
Remember that with a Medicare Advantage plan, you have two maximum limits: