What is The Cost of Medicare Part D?
Medicare will pay part of the costs of prescription drug coverage for everyone who enrolls in a plan. How much you pay will depend on which prescription drug plan you choose and whether or not you qualify for Extra Help which helps cover the costs of this coverage.
Medicare Part D Premium
The average nationwide monthly premium for 2016 is $34.10, although plan costs vary depending on the plan you choose and where you live. You will generally only want to choose a plan with low premiums if it also has the lowest overall cost per year, including the costs for the drugs you take.
Medicare Part D Deductible
Remember a plan with a deductible will not pay for your prescriptions until you pay the deductible amount out-of-pocket. The highest deductible a plan can charge in 2016 is $360. Some plans offer $0 deductible and will pay for your prescriptions right away. Other plans may offer a deductible lower than the maximum of $360 like $150 or $250. You will generally only want to choose a plan with a $0 deductible if it also has the lowest overall cost per year, including the costs for the drugs you take.
Copayments and coinsurance
A copayment, or copay, is a fixed dollar amount for your prescriptions. 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.
A coinsurance is a percentage of the price of your prescription. Typically plans require coinsurance for drugs listed in higher tiers like tier 4 and tier 5 drugs. For example, if your prescription costs $350, and your coinsurance is 25%, you will pay $87.50.
It is possible that some of your medications require a fixed copayment and others a coinsurance. Be sure to check the cost of each medication you take with the plan.
You will generally only want to select a plan with low copays or coinsurance if it also has the lowest overall annual cost per year, including the costs for the drugs you take.
What are copay tiers?
Each plan places the drugs it will pay for in different levels, called tiers. Each tier has its own copay or coinsurance amount. Your drugs may be included in all the plans in your area, but they could be listed on different tiers with different copay amounts.
Each plan will encourage you to use the lowest-cost drug to treat your medical condition. A drug on a lower tier will cost less than a drug on a higher tier.
This is the point in your Part D benefit in which most Medicare Part D plans stop paying for your drugs, sometimes called the “doughnut hole.” As of 2011, the donut hole has changed. You now will get more help with your drug costs from discounts.
- The 2016 coverage gap discounts include 42% on generics and 55% on brand name drugs. The coverage gap begins when your total drug costs (what you and your plan pay) reaches $3,310.
- If you think your total drug costs may be higher than $3,310 per year, you may want to consider a plan that will help pay for your medications during the coverage gap. There are a small number of Part D plans that will pay for your generic and/or brand name drugs during the coverage gap.
If you have a limited income and resources, you may qualify for help with your Part D costs. Learn more about Extra Help.
When does the coverage gap end (catastrophic coverage)?
In Part D, 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 2016, catastrophic coverage starts when you have paid $3,752.50, about $7,062.50 in total drug costs. If your total drug costs are more than $7,062.50 in 2016, all the Medicare Prescription Drug Plans will cover at least 95% of your drug costs for the rest of that year.
- Once you have spent $3,752.50 of your own money for drugs in 2016, you would then pay 5% or less of the cost of your drugs for the rest of the calendar year. The $3,752.50 includes the 50% the drug manufacturer paid for brand-name drugs while you were in the coverage gap. These costs are called your out-of-pocket costs. Medicare and your plan will pay for the rest of your drug costs.
- There is no cap or limit on the amount of your drug costs after you have spent $3,752.50 out of pocket.
Your drug plan will keep track of your out-of-pocket drug costs. They will send you a report each month you buy drugs.
Medicare divides drug costs into two different groups:
- Your “true” out-of-pocket costs – these are drug costs that count toward the start of your catastrophic coverage. In 2016, this includes the 50% discount amount the drug manufacturer pays for brand name drugs while you are in the coverage gap.
- 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
What costs do not count toward my share of the costs?
- The premium for your drug plans (Medicare Part D 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
- Drugs you bought from a pharmacy that was not in your plan’s network
- Over-the-counter drugs