Although about 21% of the 2023 Medicare Advantage Special Needs Plans (SNPs) will be discontinued in 2024, the number of 2023 SNPs leaving the market will be offset by the introduction of new 2024 SNPs, resulting in a 4% actual increase in the total number of 2024 SNPs.
As in past years, the vast majority (64%) of SNPs remain Dual-Eligible Medicare/Medicaid plans (D-SNPs). However, the number of counties across the country offering a Medicare Advantage Chronic Care C-SNP will increase by 10% and the number of counties offering an Institutional I-SNP will increase almost 17%.
(1) the 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 is limited at the TrOOP threshold and
(2) the 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.
Jump to 2023 example or Jump to 2024 example
Your total out-of-pocket spending (TrOOP) only includes the portion of your Initial Coverage phase spending that you actually paid for your drugs. The portion of your medication costs paid by your Medicare Part D plan are not included your 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 $70), the $100 retail cost counts toward reaching your ICL and only the $30 you actually spend counts toward meeting your TrOOP threshold.
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 2023 Part D Donut Hole?
It depends. What you spend on Medicare Part D drugs before meeting your annual TrOOP threshold ($7,400 in 2023) and exiting the Coverage Gap or Donut Hole - and entering Catastrophic Coverage will depend on several things including:
- Whether your drug plan has an Initial Deductible (for example, $505 or $0)
- Your plan's cost-sharing (what you pay for drugs, for example 25% of retail or a fixed copay of $30)
- Your plan's Initial Coverage Limit (the standard for 2023 is $4,660)
- 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 8% generic and 92% 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 2023 Medicare Part D plan has:
- a standard $505 Initial Deductible,
- an Initial Coverage Limit of $4,660,
- fixed cost-sharing of 25% coinsurance (you pay 25% of retail for all formulary drugs),
- no additional plan coverage in the Donut Hole,
- and you purchase 92.13% brand-name drugs and 8.87% generics in the Donut Hole - Medicare's 2023 drug usage prediction.
So when you purchase brand-name drugs in the Donut Hole you receive a 75% Donut Hole discount on these drugs and 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 meeting your $7,400 TrOOP limit (you can click here to read more).
So, in our example, your out-of-pocket costs are $3,180, plus the drug manufacturer has paid around $4,220 toward your brand-name Donut Hole discount, and added together, brings you to meeting your plan's TrOOP limit of $7,400.
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 $7,400 out-of-pocket before exiting the Donut Hole. Following the same example above, if you are using 100% generics while in the Donut Hole, you need to meet the $7,400 TrOOP limit yourself before exiting the Donut Hole. You will spend $505 in the Initial Deductible, plus $1,039 in the Initial Coverage phase, and $5,856 in the Donut Hole.
If you are using 100% brand-name drugs in the Donut Hole...
You will pay $2,937 out-of-pocket before exiting the Donut Hole. If you are using 100% brand-name medications in the Coverage Gap, you will personally spend about $2,937 to exit the Donut Hole. You will spend $505 in the Initial Deductible, $1,039 in the Initial Coverage phase, $1,541 in the Donut Hole, and the pharmaceutical manufacturer's portion of the brand-name discount would account for the remaining $4,315 needed to exit the Donut Hole. Good to know: Your Medicare plan's deductible and cost-sharing will also affect what you pay before exiting the Donut Hole.
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? Our PDP-Planner can help you estimate your out-of-pocket costs.
You can use our 2023 PDP-Planner to estimate your monthly and total annual out-of-pocket costs based on your mix of generic and brand-name drugs, deductible and retail drug costs. Here is an example to get you started: PDP-Planner.com/2023/ex1
What can you expect to pay in 2024 before exiting the Coverage Gap or Donut Hole?
2024 is the last year that Medicare Beneficiaries will experience the Donut Hole. After 2024, the Donut Hole will be eliminated. You can read more in our article: How 2024 Medicare Part D drug coverage is changing and will help save on prescription costs.
Following the same examples from above, assuming that your 2024 Medicare Part D plan has:
- a standard $545 Initial Deductible,
- an Initial Coverage Limit of $5,030,
- fixed cost-sharing of 25% coinsurance (you pay 25% of retail for all formulary drugs),
- no additional plan coverage in the Donut Hole,
- and you purchase 92.59% brand-name drugs and 7.41% generics in the Donut Hole - Medicare's 2024 drug usage prediction.
You will notice that your $3,429 out-of-pocket is far lower than your plan's $8,000 TrOOP threshold. Once again, this difference is because your total out-of-pocket spending includes what you spend plus any money that someone has paid on your behalf, including the 70% portion of your 75% brand-name drug Donut Hole discount that was paid by the pharmaceutical manufacturer.
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 $8,000 TrOOP - you can click here to read more.
So, in our example, your 2024 out-of-pocket costs are $3,429, plus the drug manufacturer has paid around $4,571 toward your brand-name Donut Hole discount, and added together, brings you to your plan's 2024 TrOOP limit of $8,000.
If you are using 100% generics in the 2024 Donut Hole rather than the CMS estimated mix of generic and brand-name drugs...
You will pay $8,000 before exiting the Donut Hole. Following the same example above, if you are using 100% generics while in the Donut Hole, you will need to meet the $8,000 TrOOP limit yourself. You will spend $545 in the Initial Deductible, plus $1,121 in the Initial Coverage phase, and $6,334 in the Donut Hole before exiting.
If you are using 100% brand-name drugs in the 2024 Donut Hole...
You will pay $3,333 before exiting the Donut Hole. If you are using 100% brand-name medications in the 2024 Coverage Gap, you will personally spend about $3,333 out-of-pocket to exit the Donut Hole. You will spend $545 in the Initial Deductible, $1,121 in the Initial Coverage phase, $1,667 in the Donut Hole, and the pharmaceutical manufacturer's portion of the brand-name discount would account for the remaining $4,667.
Again, you can use our 2024 PDP-Planner to estimate your monthly and total annual out-of-pocket costs based on your mix of generic and brand-name drugs, deductible and estimated retail drug costs. Here is an example to get you started: PDP-Planner.com/2024/ex1