You can find out from each Medicare Part D Plan what they charge for coverage. Different companies are allowed to charge different premiums, have different co-payments, and cover different drugs, so long as the entire plan is of equal value to the standard plan.
Some plans may offer a bigger selection of covered drugs but charge higher monthly premiums. They may have preferred pharmacies, so you pay less if you purchase your prescriptions through their preferred network of pharmacies. They may offer a discount if you use their mail order pharmacy.
The monthly premium
The basic Part D coverage may or may not include a monthly premium. You pay this in addition to the Part B premium. If you belong to a Medicare Advantage Plan (like an HMO or a PPO) that includes Medicare prescription drug coverage, the monthly premium you pay to your plan may include an amount for prescription drug coverage.
Note: Contact your drug plan (not Social Security) if you want your premium deducted from your monthly Social Security check.
Actual premiums vary depending on your plan. If you get Extra Help from Medicare, you will pay a reduced premium or no premium at all.
Note: Your Part D monthly premium could be higher if your income is above a certain amount.
Premium increases in future years will depend on the amount of the previous year’s Part D spending on prescription drugs.
Depending on the plans available, your deductible could range from a low of $0 to $360. For example, if your plan’s deductible is at the high end, you must pay the first $360 of the costs of drugs covered by the Plan before the plan begins to pay. If your plan sets the deductible amount at zero, you do not have to pay anything before the plan begins to pay.
Regardless of your plan, if you get Extra Help from Medicare, you will pay a reduced deductible or no deductible at all.
During the initial coverage phase, you pay a copayment or coinsurance, and your Part D drug plan pays its share for each covered drug until your combined amount (including your deductible) reaches $3,310.
Most Medicare drug plans have a coverage gap, also called the donut hole. Once you and your Part D drug plan have spent $3,310 for covered drugs, you will be in the donut hole.
The Explanation of Benefits (EOB) notice, which your drug plan mails to you each month when you fill a prescription, will tell you how much you’ve spent on covered drugs, and whether you’ve entered the coverage gap.
While you are in the donut hole, you have to pay certain costs out-of-pocket for your prescriptions up to a yearly limit (the out-of-pocket limit is $4,850 in 2016).
Not everyone will reach the coverage gap. Your yearly deductible, your co-insurance or co-payments, and what you pay during the coverage gap all count toward this out-of-pocket limit. The limit does not include the drug plan premium you pay, or what you pay for drugs that are not covered.
As of 2016, you pay 45% of the costs for brand-name drugs and 58% for generics. These amounts will lower until 2020, when you will pay only 25% for brand name and generic medications. The donut hole continues until your total out-of-pocket cost reaches $4,850.
There are several plans that will cover your drugs during the gap. Some will only pay for generic drugs and others will pay for both generic and brand drugs. If you qualify for Extra Help, there will be no coverage gap at all, and your plan will continue to cover your drugs during the gap period.
When you spend more than $4,850 out-of-pocket, the coverage gap ends, and your drug plan pays most of the costs of your covered drugs for the remainder of the year. You will then be responsible for a small copayment. This is known as catastrophic coverage.
Once you reach catastrophic coverage, the amount you pay depends on whether or not you receive Extra Help. If you don’t have Extra Help, you will pay 5% of the cost of the covered drug, or a co-pay of $2.50 for generics and $6.30 for brand-name drugs, whichever is greater.
If you have full Extra Help, you will pay nothing for drugs on your plan’s formulary for the rest of the calendar year. If you have partial Extra Help, and have been paying 15% of the cost of your drugs or your plan’s standard co-pay or coinsurance (whichever is cheaper), you will pay $2.50 for generic drugs and $6.30 for brand-name drugs for the rest of the calendar year.
To sum up your out-of-pocket expenses, you will pay, in a standard plan:
- The first $360 in costs
- Up to an additional $827.50 for initial coverage
- Up to an additional $3,693 in the donut hole
If you've paid the maximum for initial coverage and donut hole, this adds up to approximately $1,520.50. After you have paid that amount, you have reached catastrophic coverage.
The Plans must keep track of your out-of-pocket expenses. They also must send you monthly statements, so you can track your coverage and see how close you are to catastrophic coverage.
However, the Plans and Medicare will count only true out of pocket costs (TrOOP) in determining whether you have reached the catastrophic coverage level. Medicare will consider payments to be TrOOP if those payments come from:
- A family member or friend
- Medicare's cost-sharing assistance (for example, a QMB benefit)
- A qualified State pharmacy assistance program (for example, SeniorCare)
- A charity
On the other hand, Medicare will not consider payments to be TrOOP if those payments come from:
- Employer/ retiree group health plans
- Federal benefits unrelated to Medicare, such as TRICARE, Black Lung or VA
- Other insurance or third-party payment arrangements
Moreover, Medicare will not consider payments to be TrOOP if they are for:
- Drugs not on the Plan's formulary
- Excluded drugs (those not covered by Medicare law)
- Drugs purchased in Canada or anywhere else outside the U.S.
- Over-the-counter drugs