Both numbers can be used to define the Donut Hole. You exit the Donut Hole portion of your 2015 Medicare Part D prescription drug plan and enter into your plan's Catastrophic Coverage phase when your out-of-pocket (TrOOP) costs reach $4,700.
However, the Donut Hole or Coverage Gap also ends and the 2015 Catastrophic Coverage
phase begins once the Medicare Part D plan member's total retail drug cost reaches about $6,680, which is without considering the Donut Hole discount and assuming the Medicare Part D plan follows the Medicare 2015 defined standard Part D plan with a $320 initial deductible
and 25% co-insurance on all medications.
There two different numbers (retail cost and out-of-pocket cost) represent the same concept, but since the
introduction of the Donut Hole discount, the relationship between the numbers
has become more confusing and a bit less relevant. (We show a chart of how the 2015 out-of-pocket
costs and the total retail drug cost relate on this site.)
Before the start of the Donut Hole discount in 2011, with a little math, a person could calculate their Donut Hole exit point (or when they enter the Catastrophic Coverage phase) with either their total out-of-pocket spending (TrOOP) or their total retail drug cost.
Nowadays, with the Donut Hole discount it is easier to explain that, there are two different
numbers used to define your Medicare drug plan’s Donut Hole or
Coverage Gap (retail cost and actual cost):
(1) You enter the Donut Hole based on the total negotiated retail value of your
medications. For instance, when the total value of the retail cost of your 2015 drug
purchases exceeds the 2015 Initial Coverage Limit of $2,960, you leave your Medicare Part D plan's Initial Coverage Phase and enter
into the 2015 Donut Hole or Coverage Gap.
(2) You exiting the 2015 Donut Hole based on out-of-pocket spending (not retail drug cost). After your
actual spending for covered Medicare Part D medications has reached $4,700, you exit the 2015 Donut
Hole. (Remember, 50% of the brand-name drug discount counts toward meeting this
total out-of-pocket spending amount).
How does this work?
(1) Initial Coverage Phase: If you are in your 2015 Medicare Part D plan’s Initial Coverage
Phase (before the Donut Hole), and you purchase a medication with a $100 retail cost,
and pay your Medicare Part D plan’s $25 co-payment out of your own pocket (the Medicare plan pays
the other $75), you get $25 credit toward the $4,700 Donut Hole exit point and
$100 toward meeting your $2,960 Initial Coverage Limit. (The $25 is just used as an example co-payment, the actual cost depends on your chosen Medicare Part D plan.)
(2) Donut Hole Phase: When you are in the 2015 Donut Hole and you buy the same $100 medication, and
your Medicare plan does not have any Donut Hole coverage, you will get a 55% discount
on all brand-name drugs bought in the Donut Hole, or a 35% discount on generic
drugs purchased in the Donut Hole.
So, if your $100 medication was a brand-name drug, then you will pay only $45 -
but, you will get credit of $95 toward meeting your $4,700
out-of-pocket threshold or Donut Hole exit point. This $95 represents the
$45 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 $5 that was paid by your Medicare
Part D plan. (You can read more in our Blog on this site).
Scrolling down to the bottom chart on this page illustrates how the retail price and the out-of-pocket costs compare throughout the Medicare Part D plan phases – with variations based on the 2015 Donut Hole discount at the bottom.
If you change the $800 monthly retail cost at the top of the page and enter $557 as the monthly drug costs, click “Get Report”, then you can again go to the bottom of the chart and see that total out-of-pocket (TrOOP) drug costs of $4,700 are equal to the total retail drug cost of around $6,680.
But, just below these figures you can see that your actual coverage cost adjusted by taking into account the 2015 Donut Hole discount is much different.
For instance, if you purchase only brand-name medications in the Donut Hole, you can reach a retail drug cost of $6,680, but not be near reaching your TrOOP of $4,700. In other words, you pay 45% of the retail cost, but get credit for 95% of the retail cost toward the $4,700 TrOOP limit or Donut Hole exit point. This means, that you once you have paid $320 in the Initial Deductible and $660 in the Initial Coverage phase, you have $3,720 ($4,700 - $980) out-of-pocket costs before exiting the 2015 Donut Hole and enter the 2015 Catastrophic Coverage phase, and since we know that you get 95% credit for brand-name drug purchases toward exiting the Donut Hole, you would need to actually have retail credit of $3,916 in medications to exit the Donut Hole ($3,720 /.95).
In this case, the retail cost will not be $6,680, but $6,876 ($3,916 + $2,960).
If you only purchased generic medications in the Donut Hole (and get a 65% discount), you would need a total retail drug cost of $8,683 (($3,720 /.65) + $2,960) to reach your TrOOP limit of $4,700.
Again, depending on the Medicare beneficiary's purchasing habits or prescriptions (generic drugs vs. brand-drugs), the retail price of $6,680 may not be relevant as the person may not have reached the $4,700 TrOOP level – so they may be able to purchase more medications in the Donut Hole before reaching Catastrophic Coverage.
|
When you purchase a formulary medication |
||||||
|
Retail Cost |
You Pay |
Medicare Plan Pays |
Pharma Mfgr Pays |
Gov. pays |
Amount toward your TrOOP |
|
|
Initial Deductible |
$100 |
$100 |
$0 |
$0 |
$0 |
$100 |
|
Initial Coverage Phase * |
$100 |
$25 |
$75 |
$0 |
$0 |
$25 |
|
Coverage Gap - brand-name ** |
$100 |
$45 |
$5 |
$50 |
$0 |
$95 |
|
Coverage Gap - generic *** |
$100 |
$65 |
$35 |
$0 |
$0 |
$65 |
|
Catastrophic Coverage (generic drug)**** |
$100 |
$5 |
$15 |
$0 |
$80 |
$5 |
* 25% coinsurance
** 55% Discount
*** 35% Discount
**** approx. 5% of retail or $6.60 for brand medications, whichever is higher (80% paid by Medicare, 15% paid by Medicare plan, and around 5% by plan member)