Example #1 You pay more for your formulary drugs when you enter the Donut Hole - even with the 75% Donut Hole discount.
In this first example, we will assume your Tier 3 preferred brand-name medication (AZOPT ® 1% EYE DROPS (10.000 ML ) (NDC: 00065027510)) has a negotiated retail cost around $340 and your Medicare Part D plan has a $43 co-pay for this drug during your Initial Coverage Phase.
Based on these number you would find that you will pay more for your medication when you enter the Donut Hole - even with the 75% Donut Hole discount.
Based on this example, you pay $43 for this medication in the Initial Coverage Phase (before entering the Coverage Gap) and you would pay around $85 (75% of $340) for the same formulary drug when you are in the Donut Hole. (We calculate this number because you will receive a 75% Donut Hole discount on all formulary drugs – so you pay 25% of your Medicare plan's negotiated retail drug cost or $85 (25% of $340) - and this means your Donut Hole cost is more than the cost of your initial $43 co-payment.)
Example #2 You save money on formulary drugs when you enter the Donut Hole with the 75% Donut Hole discount.
As another example, if your Tier 4 non-preferred drug’s retail cost is $43.20, with 35% co-insurance your coverage cost would be $15.20 (you pay 35% of your plan's $43.20 retail drug price) during the Initial Coverage Phase.
When your Medicare Part D plan treats Generic formulary drugs like Brand-name drugs
Please note that, as this example highlights, generic drugs are not always organized on a generic or lower formulary drug tier such as Tier 1 or Tier 2 (in this case, the generic is a Tier 4 Non-Preferred Drug). In addition, you may find brand-name drugs on a generic drug tier. However, you still will receive the 75% Donut Hole discount in 2020 and beyond for all formulary drugs, no matter where the drug is placed within your plan's formulary.
The Bottom Line: Plan ahead for potentially higher drug costs when you reach the Donut Hole or Coverage Gap.
Even when the Donut Hole "closed" in 2020 with a 75% discount on both brand-name and generic drugs - you may find that your out-of-pocket drug costs increase when you enter the Donut Hole - so if you are currently paying less than 25% of the retail price for your drugs (such as a $10 co-pay for a $100 drug), you may wish to begin budgeting for potential cost increases as you begin to approach the Coverage Gap phase of your Medicare Part D plan (where you would then pay $25 for the same $100 formulary drug when in the Gap).