People With Medicare

Step 3: Cost

What will the Medicare Prescription Drug Coverage cost me, and what will it pay for?


If you do not qualify for extra help with costs, you will pay:

  • Monthly premiums
  • Yearly deductible (if any)
  • Co-pay or co-insurance for each prescription

If you do qualify for extra help with costs because of your limited income, you will pay:

  • Low or no monthly premiums
  • Low or no yearly deductible
  • Low or no co-pay or co-insurance for each prescription

At the end of the 7 Simple Steps, you will be able to find out if you qualify and apply for the extra help.

You can choose from many plans with different costs. In most cases, you should look for plans that have the lowest OVERALL annual cost each year. Think about how much the drugs you take cost in each plan. Your overall annual cost includes your premiums, deductibles, co-payments or co-insurance for each prescription, and any drug costs you pay during the coverage gap.

After you finish this introduction, you can go to the Medicare.gov Prescription Drug Plan Finder and get a list of plans. Then you can compare their overall annual yearly costs.

What is the coverage gap, and what do I pay?

Medicare also cares about what they call your total drug costs. Your total drug cost is what you pay for the prescriptions on your plan’s drug list, plus what your plan pays for your prescriptions.

Cost graphic

If your total drug costs (what you and the plan pay for your prescriptions on your plan's formulary) are greater than $2,830 in 2010, you will probably hit the “coverage gap,” sometimes called the donut hole. Then you will pay 100% of your drug costs until your out-of-pocket costs reach $4,550 (or your total drug costs hit $6,440). After that, you will pay either 5% of the costs of prescriptions on your plan's formulary (with your plan paying 95%) OR a co-pay of $2.50 for generic drugs and $6.30 for brand-name drugs on your plan’s formulary.

 

0-$310 $311-$2,830 $2,831-$6,440 Over $6,440

Some plans pay for drugs in the coverage gap. Those plans may pay for generic drugs, and they may even pay for some brand drugs. Premiums on these plans may be higher. Remember to choose the plan with the lowest OVERALL annual costs per year.

If you qualify for extra help with costs, you will not have a coverage gap. You will continue to pay reduced or no co-pays or co-insurance for each prescription. Depending on how much income you have, your co-pays or co-insurance may get even lower when your total drug costs reach $6,440.

Other terms you should understand:

 

Premium - The amount you pay the plan each month

You should only choose a plan with low premiums if it ALSO has the lowest OVERALL annual costs per year, including the costs for the drugs you take.

Deductible - The amount that you have to pay for drugs before your prescription drug plan starts helping you pay for drugs that it covers. Deductibles can be $0 or up to $310.

You should only choose a plan with a $0 deductible if it ALSO has the lowest OVERALL annual costs per year, including the costs for the drugs you take.

Co-insurance and Co-payments – Your share of the cost of drugs that your Medicare Prescription Drug Plan covers.

Some plans will ask you to pay a percentage of the price of each drug. This is called co-insurance. For example, if the prescription costs $100, and your co-insurance is 25%, you will pay $25.

Most plans will ask you to pay a fixed price for your drugs. This is called a co-payment, or co-pay. For example, you might have to pay $5 for a generic drug, $25 for a "preferred" brand name drug and $40 for a non-preferred brand name drug. You should only choose a plan with low co-pays or co-insurance if it ALSO has the lowest OVERALL annual costs per year, including the costs of the drugs you take.

Catastrophic coverage – If your drug costs are more than $4,550 out of pocket ($6,440 total) in a single year, all the Medicare drug plans will cover at least 95% of your drug costs for the rest of that year.

Once you have spent $4,550 out of pocket ($6,440 in total drug costs) in a single year, you would then pay 5% (or less) of the cost of your drugs for the rest of that year. There is no cap or limit on the amount of your drug costs after you have spent $4,550 out of pocket.

Remember: You will have different options and costs depending on whether you have Original Medicare Part A or B with a stand-alone Medicare Prescription Drug Plan or a Medicare Advantage plan.

 

NEXT: Which drugs the plans cover