Out-of-Pocket Costs

What counts for my “out-of-pocket” costs and catastrophic coverage?

In the Medicare Prescription Drug Coverage, you and the plan you join share the cost of drugs. The money that you spend is called your out-of-pocket costs. That determines if and when the catastrophic coverage begins. In 2014, catastrophic coverage starts when you have paid $4,440, about $6455.00 in total drug costs.

Medicare divides drug costs into two different groups:

  1. Your “true” out-of-pocket costs – these are drug costs that count toward the start of your catastrophic coverage. In 2014, this includes the 50% discount amount the drug manufacturer pays for brand name drugs while you are in the coverage gap.
  2. All other drugs you bought that do not count toward your catastrophic coverage.

What counts as my “true” out-of-pocket costs?

  • Money that you paid for covered drugs. This includes your copays and drugs you paid for to meet your deductible. It also includes most of the amount (the 50% discount) that the drug manufacturer pays for brand name drugs while you are in the coverage gap.
  • Others can help you pay all or part of your costs:
    • Another person.
    • A registered charity.
    • A State Pharmacy Assistance Program.
    • Drug manufacturer Patient Assistance Program – check with each company's program to find out if costs will count towards your “true” out-of-pocket costs.
    • Drugs that Indian Health Services or AIDS Assistance Programs provide.

Costs that do not count toward your share of the costs and catastrophic coverage:

  • The premium for your drug plans (Medicare Prescription Drug Plan or Medicare Advantage Prescription Drug plan).
  • Drugs you bought that are not on your plan’s drug list (formulary).  Note that if you and your doctor get your plan to approve a drug not on the plan’s drug list, then the costs for that drug do count toward your share of the costs and catastrophic coverage.
  • The discounts during the coverage gap that are paid by the plan, meaning the 21% discount on generics and the 2.5% discount on brand-name drugs.
  • Costs that third parties — such as employers and union insurance plans – paid for you.
  • Drugs you bought that Medicare does not cover (See Drugs Excluded by Law for list)
  • Drugs you bought from a pharmacy that was not in your plan’s network.
  • Over-the-counter drugs.

Your drug plan will keep track of your out-of-pocket drug costs. They will send you a report each month you buy drugs.

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