Medicare Part D is the part of Medicare that covers prescription drugs. If you are on Medicare, in order to have Rx coverage, you must have a Part D plan. “Original” Medicare (Parts A & B) do not cover prescription drugs.
Medicare Part D is sold by private insurance companies that are authorized by Medicare on an annual basis to sell the plans. Medicare sets forth a minimum set of guidelines that the companies have to work within, and the companies can decide how they want to tailor their plans (i.e. deductibles, premiums and co-pays) within those minimum guidelines.
To understand Medicare Part D, there are few terms that you need to know:
- Retail Cost: Retail cost is the cost your Part D company has negotiated with the pharmacies for your medications. This cost can vary from company to company. If you do not have drug coverage or if your plan does not cover your medication, you will pay the retail cost for your medication.
- Deductible: A deductible on Part D coverage works just like a deductible on any other insurance plan. This is the amount that you must meet in order for coverage to start. For 2012, the standard Medicare Part D deductible is $320. Plans can keep this deductible or they can offset it with their other benefits in order to reduce it or eliminate it entirely. It is important to understand whether your Part D plan has a deductible, and if so, what that deductible is.
- Initial Coverage Level: Initial coverage level is the first tier of coverage after the deductible on Part D plans. In layman’s terms, this is your co-pay for your medications. After the deductible is met, this is the amount that you will pay at the pharmacy to purchase your medications. Many of the Part D plans also offer a mail-order option. The retail co-pay and the mail-order co-pay are typically different. For 2012, the initial coverage level runs from $0 in retail costs to $2930. When you are in that range of total retail costs for your medications, you will pay the initial coverage level amount (the co-pay).
- Coverage Gap (also called Donut Hole): The Medicare coverage gap is more commonly referred to as the “donut hole”. This is “gap” in Part D coverage that is a feature of the Medicare Part D program. During this level, which runs from $2930 to $4700 (in 2012), you will pay a larger portion of the cost of your medications. Generally, when you are in this tier, you will pay 50% of the cost of brand name drugs and 95% of the cost of generic drugs. This “donut hole”, thanks to health care reform, is being reduced each year, until it is eventually eliminated.
- Catastrophic Coverage: Once you go through the donut hole (after $4700 in retail costs), or coverage gap, you go into catastrophic coverage. Once you are in catastrophic coverage, you are responsible for only a small portion of the overall costs of your medications until the end of the year.
- Annual Election Period: The annual election period is the period during which you can make changes to your Part D coverage. This is the only time you can change plans, unless you qualify for a SEP (see below). This period, contrary to popular belief, does not apply to Medigap plans.
- Special Election Period: A special election period, or a SEP, is a period during which you can make changes to your Part D plan outside of the AEP. A few examples of SEP’s are losing employer coverage, losing other Part D coverage, moving to a new state, etc. There are numerous other SEP’s but these are the ones that are seen most frequently.
If you have any questions about Part D, Medigap or Medicare Supplements, please contact us on our website – Medicare-Supplement.US – or call us at 877.506.3378.
Come back tomorrow for Part 2 of our Part D series.