Under Medicare, there is an optional program called Medicare Part D. This program provides insurance to help cover the cost of prescription drugs. This article describes how Medicare Part D works and explains the Part D “coverage gap.”
Medicare Part D Explained
Individuals with either Medicare Part A or Part B can enroll in an optional drug plan that is known as Medicare Part D. However, if you have other drug coverage that is better than that provided under Medicare (such as coverage from a current or former employer), you do not have to sign up for it.
It’s important to note that if you fail to enroll in a Medicare drug plan after first becoming eligible for Medicare and you don’t have other drug coverage that will pay at least as much as Medicare would (called “creditable prescription drug coverage”), you could have to pay a late enrollment penalty if you later join. This penalty must be paid on top of your premium each month for as long as you are part of the Part D drug plan. (To find out if you owe a penalty and what the premium will be, check with the plan. If you disagree with the penalty, you might be able to request a “reconsideration.” The drug plan should provide information about how to ask for a reconsideration.)
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There is no set monthly premium when it comes to Part D prescription drug coverage. Each drug plan has its own premium, which can change each year. Some plans offer more extensive benefits than others, certain plans cost less than others, and each plan has different coverage. In fact, there are vast differences in the premiums, copays, and deductibles required by different plans. Copayments, specifically, tend to vary widely from plan to plan, even for the same drug.
There are many different drug plans to choose from. It is very important to carefully compare several different plans before selecting the appropriate plan for your situation.
Phases of Coverage Under Medicare Part D
The total amount you will pay for the same drug will vary depending on which phase of coverage you are in.
- The deductible phase. Some Part D prescription drug plans require a deductible. If this applies to your situation, you must pay the full price for your prescription drugs out of pocket until you meet the deductible. At this point, coverage will then start. (“Full price” generally means the amount that your plan has negotiated for the particular drug with the manufacturer, which could be different from the retail amount charged by the pharmacy.)
- The initial coverage phase. After reaching the deductible, during the initial coverage period, you will pay your portion of the costs while the plan picks up the rest. For example, you pay a percentage of the drug’s cost (such as 25%) and the Part D plan pays the remaining amount. This goes on until you and your plan reach a particular limit. (This limit is $3,310 in 2016).
- The coverage gap or “donut hole” phase. After you reach the limit, you are in the coverage gap or “donut hole” (explained in further detail below). The donut hole is basically a time when the drug plan limits the amount it will pay for drugs. The bottom line is that, while in the coverage gap, you must pay more for prescription drugs.
- Catastrophic coverage phase. After your drug costs reach a particular amount, you get out of the coverage gap and “catastrophic” coverage begins again. This is explained in more detail below.
This cycle of paying a deductible, the initial coverage period, falling into the coverage gap, and reaching catastrophic coverage can be repeated each calendar year.
More Information About the Coverage Gap
Nearly all Medicare prescription drug plans have a coverage gap, which is also called the “donut hole”.
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The “donut hole” refers to when you (and your plan) have paid a certain amount of money for covered drugs during the year. After you fall into the coverage gap (the donut hole), you have to pay more for drugs out of pocket, up to a certain amount of money. And then catastrophic coverage kicks in.
How Much You’ll Pay For Drugs While in the Gap
Your plan will still cover some of the expenses for prescription drugs while you’re in the donut hole, but it will be less than it paid before you reached the gap. For example, in 2016, you’ll pay 45% of the cost for brand-name drugs and 58% of the cost of generic drugs. However, thanks to the Affordable Care Act, by 2020, the amount is only 25% for covered brand-name and generic drugs during the gap.
Also, you’ll have to continue to pay the monthly premium during the gap otherwise the plan will probably end your contract. This will leave you without prescription drug coverage. Then, if you later decide to enroll in a Part D plan again sometime in the future, you will have to pay a penalty based on the number of months that you did not have coverage. This will be added to the monthly premium.
How You’ll Find Out If You’re Close to Reaching the Gap
Each month that you fill a prescription, you’ll get an “Explanation of Benefits” (EOB) notice in the mail. The EOB notice will let you know how much you’ve spent on covered drugs and if you’ve reached the coverage gap yet.
The coverage gap starts when your total drug cost (that is, the amount you and your plan have paid for drug) reaches a certain amount since the beginning of the calendar year. The amount at which you reach the coverage gap typically changes each year. In 2016, the gap starts once you and your plan have spent $3,310 (combined) on covered drugs.
Not Everyone Reaches the Gap
Not all people get to the coverage gap. For example, if you and your plan don’t spend $3,310 in 2016, you don’t need to worry about the gap.
Also, those who get Extra Help paying Part D costs avoid the coverage gap. (The “Extra Help” program is aMedicare program that assists with the expenses of a Medicare prescription drug plan, including premiums, deductibles, and coinsurance, if your yearly income and resources are below certain limits.)
You’ll also avoid the gap if you have additional coverage from an employer or union benefits that covers all or part of the gap, or if you have coverage from a state pharmacy assistance program. (Many states and the U.S. Virgin Islands have programs that help cover the cost of drug plan premiums and/or other drug costs.)
Another way to avoid the donut hole is to enroll in a Medicare drug plan that covers drug costs (typically only generics) during the gap. Usually, you will have to pay a higher premium for this type of coverage.
Also, you may be able to delay reaching the gap if you use low-cost drugs. This has the effect of making your initial coverage last longer. It is always a good idea to check with your doctor to find out if a generic version or less-expensive brand-name drug is available. This could also reduce your copayment amount.
How to Get Out of the Gap Once You’re In It
Fortunately, there is an out-of-pocket limit ($4,850 for 2016) and then you exit the donut hole. After reaching this amount, you automatically get “catastrophic coverage.” If you have catastrophic coverage, you will only be held responsible for a minor coinsurance amount or a copayment for the remaining portion of the year.
What Counts Towards Getting Out of the Gap
Certain costs, such as the amount a manufacturer contributes for brand-name drugs, count toward the limit, even though you didn’t actually pay this amount out of pocket. Other amounts do not count.
The following are some of the costs that are counted towards getting out of the coverage gap:
- the yearly deductible, coinsurance, and copayments
- the discount you receive on brand-name drugs while in the coverage gap; and
- the amount you pay out-of-pocket while in the coverage gap.
The following are some of the costs that are not counted towards getting out of the coverage gap:
- your drug plan premium
- amounts paid by other insurance
- pharmacy dispensing fees, and
- amounts you pay for drugs that are not covered.
What to Do If You Can’t Pay for Drugs While in the Coverage Gap
If you are having difficulty paying for your prescription drugs while in the coverage gap, the first thing you should always to is to ask your doctor if there are any generic or other (less expensive) brand-name drugs on the plan’s formulary that will work for your medical condition. This can significantly lower your costs.
There might also be programs in your area designed to help reduce drug costs. For example, you might be able to obtain free or low-cost drugs from an assistance program administered by a pharmaceutical manufacturer, or from local medical clinics, local charities, or certain patients’ organizations.