The drug's retail price. The plan's negotiated retail drug costs are used to calculate when you "fall" into the Coverage Gap or Donut Hole - so not what you actually spend, but the retail value of what you purchase.
For example . . .
When you are in your Medicare Part D plan's
Initial Coverage Phase and use your Medicare Part D plan, you usually pay a certain price for your drug that is
less than or equal to the drug's retail price.
For instance, you may use the brand-name drug
ADVAIR DISKUS MIS 250/50. If ADVAIR DISKUS MIS is covered by your Medicare Part D plan, you may pay around
$47 (or $42 or 20% of retail or another co-payment, depending on your Part D plan). However, the negotiated retail price of the medication may actually be around
$400. So, in this example, your Medicare Part D plan will pay the difference between your co-payment of $47 and the plan's negotiated retail cost of $400.
In this example, the $400 plan's retail cost counts toward reaching the plan's Initial Coverage Limit (
$4,660 in 2023 and
$5,030 in 2024) and this is the entry point into the Coverage Gap or Donut Hole. The $47 co-pay that you paid counts toward your out-of-pocket cost.
Non-formulary drug purchases do not count toward reaching the Donut Hole
If the ADVAIR DISKUS MIS 250/50 was
not on your Medicare Part D plan's formulary or drug list, the drug purchase would
not be covered by your Medicare Part D plan, and you would pay about
$400 or more at the pharmacy. And this
$400 expense would
not count toward entering the Donut Hole - and the $400 would not count toward your total out-of-pocket spending.
Bottom Line: Only the retail price of drugs covered by your Medicare Part D plan are counted toward reaching the Coverage Gap.
To help you visualize the phases of your Medicare Part D prescription drug plan coverage,
we have a Donut Hole Calculator or
PDP-Planner
online illustrating how your retail drug costs move you through the phases of your Medicare Part D coverage and your estimated monthly out-of-pocket costs based on the standard Medicare Part D plan limits.