Throughout the year you may notice that you are paying different amounts for your drugs. This is because Part D plans have coverage phases throughout the year, during which you pay different amounts for your covered prescription drugs. These coverage phases are:
- The deductible phase. If your plan has a deductible, you start off the year in the deductible phase. During this time you pay out of pocket for the entire cost of your drug.
- The initial coverage period. After you meet your deductible (if you have one), you move on to the initial coverage period. During this time you and your plan share the cost of your prescription drugs. You will pay the plan’s copays or coinsurance amounts at the pharmacy.
- The coverage gap (also known as the donut hole). After your total drug costs reach a certain amount ($4,130 for most plans), you enter the coverage gap, also known as the donut hole. This amount includes your copays or coinsurance amounts as well as the amount that your plan has paid for drugs. This is important to note, as low pharmacy copays do not necessarily mean you will not reach the coverage gap. The donut hole closed for all drugs in 2020, meaning that when you enter the coverage gap you will be responsible for 25% of the cost of your drugs. In the past, you were responsible for a higher percentage of the cost of your drugs during this period. Although the donut hole has closed, you may still see a difference in cost between the initial coverage period and the donut hole. For example, if a drug’s total cost is $100 and you pay your plan’s $20 copay during the initial coverage period, you may be responsible for paying $25 (25% of $100) during the coverage gap.
- Catastrophic coverage. The last coverage phase is catastrophic coverage. In 2020, once you have paid $6,350 in out-of-pocket costs on your covered prescription drugs, you will move out of the coverage gap and into catastrophic coverage. This amount includes your deductible, copays, or coinsurance amounts you paid during the initial coverage period, and almost the full cost of brand-name drugs (including the manufacturer’s discount) purchased during the coverage gap. Any amount paid by your plan does not count to get you into catastrophic coverage. Your monthly premium and the cost of non-covered drugs also do not count. During catastrophic coverage, you will pay 5% of the cost for each of your drugs, or $3.60 for generics and $8.95 for brand-name drugs (whichever is greater).
Your plan should keep track of how much money you have spent out-of-pocket on your covered prescription drugs and which coverage period you are in. This information should be printed on your monthly statements, known as an Explanation of Benefits (EOB).
Read Next: When Signing Up for Part D Prescription Drug Plan, What Are Some Questions I Should Consider?
Find Out: If I Already Have Prescription Drug Coverage Do I Need a Part D Prescription Drug Plan?
Return to: Medicare Part D
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