(1) You will enter the Donut Hole based on the total
negotiated retail value of your medication purchases. For eample, when the total retail cost of
your 2020 drug purchases exceeds the standard Initial Coverage Limit of $4,020 ($3,820 in 2019), you will leave your Medicare plan's Initial Coverage Phase (where you share the cost of your prescriptions with your Medicare plan)
and enter into the Donut Hole.
(2) You will then exit the Donut Hole based on your total out-of-pocket spending (or TrOOP) limit. For example, in 2020, the TrOOP limit or Donut Hole exit point is reached after your actual out-of-pocket spending for covered
medications has reached $6,350.
Remember, while you are in the Donut Hole, 70% of the brand-name drug
discount that is paid by the drug manufacturers counts toward meeting this total out-of-pocket spending amount.
Here is how this works: If you are in your Medicare Advantage plan's Initial
Coverage Phase (before reaching the Donut Hole), and you purchase a medication with a
$100 retail cost, and pay your Medicare plan's co-payment (for example, $30) out
of your own pocket, and the Medicare plan pays the other $70, you get $30 credit
toward the $6,350 Donut Hole exit point and $100 toward your $4,020 Initial
Coverage Limit.
When you exceed the Initial Coverage Limit of $4,020, enter the 2020 Donut Hole, and you buy the same $100 medication, and your Medicare plan does not provide any additional Donut Hole coverage, you will get a 75% Donut Hole discount on all brand-name drugs bought in the Donut Hole (you pay 25% of retail), or a 75% discount on generic drugs purchased in the Donut Hole (again, you pay 25% of retail).
Going back to our previous example, if your $100 medication was a brand-name drug, then you
will pay only $25 (25% of $100) in the Donut Hole - but, you will get credit for $95 toward meeting
your $6,350 out-of-pocket threshold or Donut Hole exit point. This $95 credit represents the $25 that you
paid for the formulary drug and the $70 that was paid on your behalf by the brand-name drug
(pharmaceutical) manufacturer. You do not get credit for
the $5 portion of the retail cost paid toward the brand-name discount by your Medicare plan.