Medicare Part D Drug Plans Explained

Coverage Phases: What are they?

CMS (Centers for Medicare and Medicaid Services) and your insurance carrier calculate which coverage phase you are in. The amount of money spent on your Medicare covered prescriptions over the course of a year determines your current phase. Depending on the phase, you pay for as much as 100% or as low as 0% of the cost of your medications. Currently, Medicare prescription plans can have either 2 or 3 coverage phases. To muddy the waters even more, many plans use 2 coverage phases for Generic medications and 3 for Brand Names. However, we will get to that later on.

Medicare awards some low income beneficiaries a program named LIS (Low Income Subsidy), also called Extra Help. This keeps the cost of their medications at a constant low rate for the entire year. In essence, it allows you ignore the coverage phases. In addition, when you reach catastrophic, the insurance company pays all cost of covered medications. If you think you might fall into this category, give us a call and we can submit an application to see if you get approved.

Medicare Part D Deductible

Each insurance company decides whether not to include the first coverage phase. This phase is called the Deductible Phase. While in the deductible phase, you pay for 100% of the cost of your medications. You exit this phase when you have spent the amount of money equal to your deductible. Meaning if you have a $420 deductible, you pay the first $420 towards the cost of your medications for the year. Or if your plan chooses a $0 deductible, you skip this phase entirely.

Some plans have a deductible for only brand name medications, some have a deductible that applies to any medication, and some have none at all. Schedule a consultation to talk about which plan would cover your specific medications best.

Initial Coverage & Beyond

After the deductible comes the Initial Coverage Phase. In this phase, your prescription plan will pay exactly how it was advertised. You will have different tiers of medications, up to 6. Each tier comes with different copays, with the generics normally falling in tiers 1 and 2 and brand names being tiers 3, 4 and 5. Some plans include a tier 6, maintenance medications, which end up costing an equivalent to the prices you would pay for tier 1 or 2 medications. You stay in the initial coverage phase until your TrOOP (True out of Pocket) spending reaches $2000.

At this point you enter the Catastrophic Coverage Phase. Now, all of your prescribed medications on the formulary are provided to you at no cost for the remainder of the year. This acts as an upper limit for your annual medication cost, and is subject to change each year. Important to note, if your medication is not on your plans formulary, it will not be covered in any of the coverage phases – including catastrophic. We can get medically necessary medications added to your plans formulary with a few different methods. It’s important to consult with your broker as well as your doctor to make sure the correct medications are covered on your plan.

Donut Hole? Coverage Gap?

Up until 2025, Medicare approved Part D drug plans have had a separate “Initial Coverage Limit” and a “Catastrophic Coverage Limit.” What do these terms mean? The “Initial Coverage Limit” is the total amount you pay in copays plus the total paid by your insurance company for your medications. When you reach this limit, you enter the “coverage gap” and are responsible for 25% of your medication costs until you reach the “Catastrophic Coverage Limit.”

In 2024, once you reached the catastrophic limit of $8,000, you paid no medication costs for any formulary covered medications. Starting in 2025, however, this limit dropped to $2,000 and the coverage gap phase no longer applies.

What this means for you? Starting in 2025, your part D plan will pay exactly as you expect, until the total spend between you and the insurance carrier reaches $2,000. At that point you’ll no longer have any copays for your formulary listed medications. This translates to huge savings for you, the Medicare beneficiary. Schedule a consultation today to see how this change will affect you and your pocket book.