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Does my $47 co-pay impact when I enter the Donut Hole?

Not exactly.  You will enter the Donut Hole based on the retail value of your formulary drug purchases - not just your co-payment (although a portion (or maybe all) of your co-payment will make up the retail drug cost).

So if your Tier 3 medication has a negotiated retail cost of $300 and your Medicare Part D plan has a $47 co-pay for the Tier 3 drug, the $300 counts toward entering the Donut Hole or reaching your Initial Coverage Limit ($4,020 in 2020, $4,130 in 2021) and the $47 co-payment you pay counts toward meeting your total out-of-pocket costs (the TrOOP threshold is $6,350 in 2020, $6,550 in 2021). 

However, if your Tier 3 medication has a negotiated retail cost of $30 and your Medicare Part D plan has a $47 co-pay for the Tier 3 drug, you will pay the "lessor of" the plan's co-pay or the drug's retail price.  And since you never pay more than the drug's retail price, you will pay $30 for the drug (not the $47 co-pay) and the $30 you spend counts toward reaching your Initial Coverage Limit and entering the Donut Hole - and the $30 you spend also counts toward meeting your total out-of-pocket costs (the TrOOP threshold is $6,350 in 2020, $6,550 in 2021). 

When you exceed your TrOOP threshold, you exit your Medicare Part D plan’s Coverage Gap or Donut Hole, and enter the Catastrophic Coverage phase.

[Reader Comment:  Wasn't the Donut Hole eliminated in 2020?

Our Response:
  Although we say that the Donut Hole "closed" in 2020 since you receive a 75% discount on all formulary drugs, you will still leave your Initial Coverage Phase once your retail drug costs exceed the Initial Coverage Limit.  And when you leave your Initial Coverage Phase, you will enter the Coverage Gap (Donut Hole) where the cost of your formulary medications can increase, decrease, or stay the same - depending on your Medicare plan, your Initial Coverage Phase cost-sharing, and the drug's retail price.

Using the first example above, your drug costs will increase almost 3-times when you reach the Donut Hole.  In the Donut Hole, you will pay 25% of the $300 retail drug price - or $75 instead of your previous $47 co-pay.  Using the second example, your drug costs decrease when you enter the Donut Hole as you would pay 25% of the $30 retail drug price or $7.50 instead of $30.]

Key Points:
  • You will leave your Initial Coverage Phase and enter your Medicare Part D plan's Donut Hole or Coverage Gap when your retail medication costs reach your Medicare Part D plan's Initial Coverage Limit (ICL - not just the amount of what you paid, but the your plan's negotiated retail value of the medications you purchased).

  • Your Medicare drug plan's Initial Coverage Limit can change each year.  In 2014, the Donut Hole entry point was when a person's total retail drug costs totaled $2,850 - in 2019, the Initial Coverage Limit or Donut Hole entry point is $3,820 - and in 2021 the ICL is $4,130.

  • One large drug purchase (or multiple month drug purchase) can actually move you from the Initial Deductible through the Initial Coverage Phase and into the Donut Hole, so the only way to know exactly when you will enter or leave the Donut Hole is by watching your monthly Medicare Part D plan's Explanation of Benefits statement carefully (you received this printed form in the mail) or you can contact your Medicare Part D plan and ask the Member Services representative where you are relative to the plan's Coverage Gap.

  • Once you are in the Donut Hole or Coverage Gap, you will automatically receive a discount on your brand-name and generic drug purchases.  The 2020 brand-name Donut Hole discount is 75% (you pay 25% of retail) and the generic Donut Hole discount is also 75% (you pay 25% of retail).

  • You will stay in the Donut Hole phase until your true out-of-pocket costs (also called TrOOP or total drug spend) reaches a certain level. TrOOP is made up of what you pay during the initial deductible (if you have one) plus what you personally pay in the initial coverage phase, before the Donut Hole, plus what you pay in the Donut Hole (and you get credit for the 70% brand-name discount paid by the drug manufacturer in the donut hole) - for instance, if in 2020 you buy a brand-name drug with a $100 retail value, you will pay $25, but get credit for $95 toward TrOOP ).

  • TrOOP can change every year.  For example, the TrOOP in 2014 was $4,550 - TrOOP in 2019 is $ 5,100 - and TrOOP in 2021 is $6,550.

  • Once you exceed your TrOOP limit, you enter the Catastrophic Coverage portion of your Medicare Part D plan.

  • No matter where you are at the end of the year, your Medicare Part D plan coverage ends on December 31st and the whole process begins again from the start on January 1st of the next year.
To help you visualize the phases of your Medicare Part D prescription drug plan coverage, we have a Donut Hole Calculator online for each year's coverage: PDP-Planner.com.  You can enter your estimated monthly retail drug costs, deductible, estimated mix of generics and brand drugs and see how your spending changes throughout the phases of your drug plan.

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