Understanding Medicare Part D & The Coverage Gap
Medicare Supplemental Insurance plans that require an additional Medicare Part D drug plan and Medicare Advantage plans that come with Part D plans..
D included. Medicare Supplemental Insurance plans will need a separate Part D policy. You can also have a Medicare Part D plan with original Medicare and not even purchase a Medicare supplemental insurance or Medicare Advantage Plan, although this is not recommended. The coverage gap or donut hole phase for both Medicare Advantage plans and Medicare Supplemental Insurance plans begins when you reach a retail drug cost of $2960. According to Medicare.gov the $2960 is the total retail cost of the covered medications NOT what you are spending at the pharmacy. The retail costs are different with every Part D plan provider. Every provider has their own negotiated retail rates. That’s why your friend, Tom, with a Medicare Advantage plan can reach the coverage gap or donut hole faster even though you may take the same medications but have a different carrier.
Let’s talk about TrOOP. No, not as in boy scouts troops. As in “true out of pocket” costs. For some reason the Medicare Supplemental Insurance plans and Medicare Advantage plans are crazy about acronyms. Let’s say that your Medicare Part D plan has a $320 deductible (max for 2015). After your deductible is met, you are responsible for paying 25% of the next $2640, for a total out of pocket costs (or true out of pocket costs – TrOOP) of $980 (excluding the premiums). Wait just a darn minute you may be thinking. I thought it was $2960? Where did $2640 come from? Answer: The deductible. Not to confuse you or anything. Following the above formula when you reach the donut hole you will have paid out of your own pocket $980 and your Part D provider will have paid $1980 to reach the magic number of $2960. That $2960 is also referred to as your initial coverage phase by both Medicare Advantage plans and stand alone Medicare Part D plans.
Does your Part D provider not charge a deductible and has a tier pricing plan? Perhaps there is no deductible to meet with your Medicare Advantage plan? No worries! The coverage gap or donut hole still begins when you reach a total of $2960. Some Part D providers have a different initial coverage phase or limit, but Uncle Sam assures us that it will all add up to the $2960 (approximately); regardless, of whether you have a Medicare Advantage plan or Medicare Supplemental Insurance plan. So don’t over stress about keeping track about what you spend at the pharmacy. No need to sign up for an accounting class at your local community college. The Medicare Part D provider will keep track of all of that for you. You can keep track of the provider by actually opening the Explanation of Benefits (here we go again with the acronyms) or EOB. This EOB will be mailed to you every month. Inside the envelope you will discover that it gives you an overview of your spending as you approach the coverage gap. If you need help understanding the EOB call your Part D provider for assistance. The number will be on the back of your Medicare Advantage plan member ID card or your stand alone Medicare Part D member ID card.
Next up, getting out of the donut hole. You may be thinking that Chinese water torture might be preferable to understanding this but don’t despair. Almost all the drug manufacturers have promised CMS to give a 50% discount on brand name drugs in 2015 and you, the insured, will pay the 45%, leaving the remainder 5% to be paid by the Medicare Part D insurance carrier. Again, it doesn’t matter which plan you have, Medicare Advantage or a Medicare Supplemental Insurance plan. Both the drug companies 50% discount and your 45% will count towards the coverage gap. Beginning in 2015, you will pay 72% for a generic drug plus the pharmacy dispensing fee. Only the 72% and the dispensing fee you actually pay yourself goes toward the $4700 you will spend out of pocket to get out of the gap. The 28% subsidy doesn’t count. Your total out of pocket expenses for 2015 will be $6,680 for your medications on both Medicare Advantage plans and Medicare Supplemental Insurance plans.
One more issue and we are done. Some providers offer coverage during the gap. You will mostly see this option with stand alone Medicare Part D plans rather than Medicare Advantage plans. Here is an example to see if the extra premium is worth the coverage. Let’s say, as an example, that a monthly premium for Part D with gap coverage costs $30 more per month or $360 more per year than a plan without gap coverage. Let’s assume that with the gap coverage your monthly co-pays for medications are $100 vs. $300 without the gap coverage. You reach the donut hole in the ninth month of the year which leaves 4 months for you in the gap. $300-$100 = $200 per month savings with the gap coverage. Then multiply your savings during the months you are in the coverage gap $200 x 4 months = $800. Now subtract the premiums you paid from the savings $800 – $360 (gap premium cost) = $440 yearly savings. So in some circumstances, it is beneficial to pay the additional premium and get coverage while in the gap, particularly if someone is on a lot of medications or expensive ones.
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