In 2017, does the $4,950 out-of-pocket Donut Hole limit include the $3,700 Initial Coverage Limit so you only have to pay $1,250 ($4,950-$3,700) before leaving the Gap?

No. Your $4,700 total out-of-pocket spending limit (2017 TrOOP) includes only the portion of your $3,700 Initial Coverage Limit that you actually paid for your medications - so, you cannot just subtract the two numbers to determine how much you will need to spend before leaving the Donut Hole.

As an example, if you purchase a medication with a retail cost of $100 and you pay a $30 co-payment for the drug (your Medicare Part D plan pays the $70 balance toward the $100 prescription), the total retail value of $100 counts toward meeting your Initial Coverage Limit and moves you $100 closer to entering the Donut Hole or Coverage Gap - but only the amount you spent ($30) counts toward exiting your Donut Hole or meeting your 2017 TrOOP limit of $4,950.

So you will stay in the 2017 Donut Hole until your total out-of-pocket spending (not including monthly plan premiums) exceeds the $4,700 out-of-pocket threshold (TrOOP) - less any brand-name drug discounts you receive while in the Donut Hole (you can click here to read more about the amount of a Donut Hole purchase that counts toward getting out of the Donut Hole).

And in more detail - the long answer:
We use two different numbers to define your Medicare Part D drug plan’s Donut Hole or Coverage Gap:

(1) The Donut Hole entry point or the Initial Coverage Limit (ICL): As noted, $3,700 is your 2017 Initial Coverage Limit or total retail value of your drug purchases before entering the Donut Hole. So this $3,700 includes what you have spent on medications plus what your Medicare plan has contributed toward your medications and determines when you enter the Donut Hole. Again, when the total retail cost of your drug purchases exceeds $3,700, you go into the 2017 Donut Hole.

For example, if you are in your Medicare Part D plan’s Initial Coverage Phase, purchase a medication with a $100 retail cost, and pay 25% co-insurance for the drug (the plan pays the other $75), you get the $100 retail drug cost credited toward your $3,700 Initial Coverage Limit.

(2) The Donut Hole exit point or total out-of-pocket (TrOOP) spending: After your actual spending for covered medications has reached $4,950, you exit the 2017 Donut Hole. As noted above, 50% of the brand-name discount counts toward meeting this total out-of-pocket spending amount.

Using the same example: If you are in your Medicare Part D plan’s Initial Coverage Phase, purchase a medication with a $100 retail cost, and only pay a 25% co-insurance (the plan pays the other $75), you get $25 credit toward the $4,950 Donut Hole exit point.

How the Donut Hole discount affects TrOOP
When you are in the 2017 Donut Hole and you buy the same $100 medication, and your plan does not have any additional Donut Hole coverage, you will get a 60% discount on all brand-name drugs bought in the Donut Hole, or a 49% discount on generic drugs purchased in the Donut Hole.

If your $100 medication was a brand-name drug, then you will pay only $40 - but, you will get credit for the $90 toward meeting your $4,950 out-of-pocket threshold or Donut Hole exit point. This $90 TrOOP credit represents the $40 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 $10 that was paid by your Medicare Part D plan.

If the $100 medication was a generic drug, you would pay $51 dollars and you would get credit toward meeting the $4,950 Donut Hole exit point or out-of-pocket threshold only for the actual $51 you spent.

When you purchase a formulary medication with a $100 retail cost and a $30 co-pay in 2017
Retail Cost	You Pay	Medicare Plan Pays	Pharma Mnfgr Pays	Gov. pays	Amount toward your TrOOP
Initial Deductible *	$100	$100	$0	$0	$0	$100
Initial Coverage Phase **	$100	$30	$70	$0	$0	$30
Coverage Gap - (brand-name) ***	$100	$40	$10	$50	$0	$90
Coverage Gap - (generic) ****	$100	$51	$49	$0	$0	$51
Catastrophic Coverage (generic) *****	$100	$5	$15	$0	$80	$5

* Retail Cost toward ICL
** assume a $30 co-pay (Retail Cost toward ICL)
*** 60% Brand-Name Donut Hole Discount
**** 49% Generic Donut Hole Discount
***** approx. 5% of retail or $8.25 for brand medications (or $3.30 for generics), whichever is higher

See also:
"An explanation of the 2017 Medicare Part D Coverage Gap or Donut Hole."
on this site

"Is the Medicare Part D Donut Hole any different if I am enrolled in a Medicare Advantage plan with drug coverage?" on this site