Understanding the Phases and Costs of Medicare Part D

The Costs of Medicare Part D:

Most drug plans charge a monthly fee that varies by plan. You pay this in addition to the Part B premium. If you’re in a Medicare Advantage Plan, the monthly premium may include an amount for prescription drug coverage. 
In some cases, you can have your premium deducted directly from your social security or railroad retirement check, but it is not mandatory.

For a detailed list of Part D premiums in 2021, download them here.

There are 4 phases to costs within the Part D program.

1. Annual Deductible: This is the amount you must pay before your drug plan begins to pay its share of your covered drugs. In this phase, you are paying the full cost of the prescription drugs. Some drug plans don’t have a deductible.
2. Cost-Sharing: In this phase, you and the drug plan are splitting the cost of your drugs. You are paying either a fixed amount, or a percentage of the retail costs. That amount is based on which tier your drug falls into. You remain in the cost-sharing phase until your annual drug costs (retail costs, not what you have paid out of pocket) hit the coverage gap threshold and you enter phase three.
3. Coverage Gap/Donut Hole: The coverage gap begins after you and your drug plan together have spent a certain amount for covered drugs. Once you enter the coverage gap, you pay a percentage of the plan’s cost for covered drugs until you reach the end of the coverage gap. That percentage is different based on year and whether your drug is a brand or generic drug. Not everyone will enter the coverage gap because their drug costs won’t be high enough. The drug plan premium and what you pay for drugs that aren’t covered by the plan don’t count toward getting you out of the coverage gap.
   
   Some plans offer additional cost-sharing reductions in the gap beyond the standard benefits and discounts on brand-name and generic drugs, but they may charge a higher monthly premium. Check with the plan first to see if your drugs would have additional cost-sharing reductions during the gap.

4. Catastrophic Coverage: Once you get out of the coverage gap, you automatically get catastrophic coverage. With catastrophic coverage, you only pay a small coinsurance amount or copayment for covered drugs for the rest of the year. The drug plan assumes the largest amount of the cost for your prescriptions. 

For an easy-to-understand, graphic representation of how the phases of Medicare Part D works, download this handy reference guide.

 (with a special thank you to the National Council on Aging NCOA.org for permission to distribute this guide)