Prescription drug coverage offered through Medicare may be optional, but many seniors rely on it to get the medication they need to stay healthy and strong. If you’re considering coverage, or you’re already enrolled, you may have questions about some of the phrases used to explain your Part D benefits. Defining key terms will help you better understand how your prescription drug benefits work and what you can expect to pay for your medication. 

Donut Hole (Coverage Gap)

Most Medicare Prescription Drug Plans have a coverage gap, also called the “donut hole”. This means there’s a temporary limit on what the drug plan will cover for drugs. Not everyone will enter the donut hole—the gap begins after you (and your plan) spend a certain amount of money on drugs.

While in the donut hole, you will need to pay for your prescriptions. However, most prescription drug plans offer savings on drugs once you reach the coverage gap.

Expect to pay no more than 40 percent of your plan’s cost for brand-name prescription drugs. However, this does count toward your out-of-pocket spending amount.

Medicare currently pays 49 percent of the total price for generic drugs during the donut hole; you pay the remaining 51 percent. The good news? This percentage will decrease each year until 2020 when it reaches 25 percent. 

Formulary

The formulary is a list of drugs covered by a prescription drug plan. Many Medicare drug plans place drugs into different “tiers” on their formularies. Drugs in each tier have different costs. Different Medicare drug plans have different formularies, and most change annually. Even if your drugs are included in your plan’s formulary, be prepared to look it over every year for changes. 

Out-of-Pocket-Maximum

The out-of-pocket maximum, or limit, is the most you have to pay for covered services in one year. Typically, after you reach this amount in deductibles, copayments, and coinsurance, your plan pays 100 percent of any remaining costs of covered benefits.

Generic, Preferred, and Non-Preferred Brand Name Drugs

 There are three tiers or levels of prescription drugs: generic, preferred brand name, and non-preferred brand name.

Generic drugs are typically the least expensive and are considered “equivalent alternatives” to more expensive brand-name drugs. A generic drug is identical to a brand-name drug in dosage, safety, strength, quality, and the way it works and should be used.

Preferred brand name drugs do not have an equivalent alternative or generic version available. However, they are widely used and accepted and can be obtained at a lower cost than non-preferred drugs.

Non-preferred brand-name drugs are the most expensive of the three. Usually, a less expensive alternative is available.

Extra Help For seniors with limited income and resources, financial help is available to help pay for medications. Eligibility for the Extra Help program is based on income but divided into levels offering full or partial benefits. If you qualify for full Extra Help, expect to receive premium-free drug coverage for the entire year with no deductible. If you qualify for partial Extra Help, expect to receive coverage for the entire year, while paying a reduced premium and deductible. Partial Extra Help recipients receive as much as 15 percent off the cost of drugs.

While some people qualify for extra help automatically, you may need to inform your prescription drug plan if you qualify for Extra Help. In most cases, Medicare will send documentation to you by mail if you qualify based on income. Or, you can provide your documentation, such as a bill from a nursing home, a Medicaid statement, etc. 

References:

Finding Your Level of Extra Help: https://www.medicare.gov/your-medicare-costs/help-paying-costs/extra-help/level-of-extra-help.html

Save on Drug Costs: https://www.medicare.gov/your-medicare-costs/help-paying-costs/save-on-drug-costs/save-on-drug-costs.html

What Drug Plans Cover: https://www.medicare.gov/part-d/coverage/part-d-coverage.html

Generic Drugs: Questions and Answers: https://www.fda.gov/Drugs/ResourcesForYou/Consumers/QuestionsAnswers/ucm100100.htm

Costs in the Coverage Gap: https://www.medicare.gov/part-d/costs/coverage-gap/part-d-coverage-gap.html

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