During the first quarter of the new year I often receive this question: “Dan, I went to refill my prescription and was quoted almost double what I paid in December.”
Here’s why. Medicare Part D Prescription Drug plans reset each year on January 1 and benefit levels start again at the first of four phases. The first is the Annual Deductible Phase, followed by the Initial Coverage Phase and then the Coverage Gap aka Donut Hole. Let’s review each:
1) The Annual Deductible is the amount you pay before your prescription benefits begin. You pay the full cost of your prescriptions until your spending adds up to the amount of your deductible. Not all but most Medicare Part D plans have some form of a deductible. $445 is the maximum deductible that Part D plans can charge in 2021.
Keep in mind your deductible may only apply to medications in certain tiers – usually the higher tiers 3, 4 and 5 – while a few (not many) plans still apply the deductible to all medications – generic and brand.
- If your plan has a $0 deductible, you skip straight to phase 2.
- Review your plan’s Formulary of covered medications and identify which, if any, are subject to the deductible.
- Social Security’s Extra Help program will pay for some or all of the plan deductible, depending on your eligibility level.
- The deductible is paid once whether you have one or multiple medications. So, for example, if you have several tier 3 and tier 4 medications, the plan deductible is paid once, not on each medication.
2) The Initial Coverage Phase begins immediately for i) plans with $0 deductible, ii) medications not subject to a deductible or iii) once the prescription copay payments you have made equal your plan’s deductible level.
- Your plan Evidence of Coverage document will indicate your cost for covered drugs at a fixed amount (Ex: $10 co-payment) or a percentage of the medication cost (Ex: 20% co-sharing) based on the drug’s assigned Tier Level.
- That cost schedule assumes you are having the prescription filled at a Preferred Pharmacy. (Check with your plan to confirm whether your favorite local pharmacy has a preferred status with your plan.)
- Social Security’s Extra Help program helps by lowering your copay costs – the amount depends on your eligibility level.
- $4130. Make a note of that amount. This Initial Coverage phase ends when the combined amount spent by you (copayments) and the plan on covered drugs reaches $4130. Be sure to check your pharmacy receipt for the total price – that amount will count towards the $4130 level.
3) Your Part D plan will send you a summary report during each month you have a prescription filled. Pay close attention to the cumulative cost of the medications filled year to date. Why? The Coverage Gap Phase (aka donut hole) begins when you and your plan have together spent $4130 on your covered drugs.
Not everyone will reach the $4130 level and enter the coverage gap. If you do, you’ll pay 25% of the plan’s cost for covered brand name and generic drugs.
You exit the coverage gap when your total out-of-pocket cost on covered drugs (not including premiums) reaches $6550. Your out-of-pocket cost is calculated by adding together all of the following:
- Your Phase 1 Yearly deductible payment
- Your Phase 2 coinsurance and copayment payment
- Your Phase 3 coverage gap 25% coinsurance payment and manufacturer discounts you didn’t pay.
For a complimentary review of your medications, plan formulary and estimated annual expenses, please contact one of our experienced agent advisors: