Navigating the ins and outs of Medicare can be a challenge if you’re not familiar with certain terms.
Medicare Part D, which helps cover prescription drug costs, has its own terminology. With Medicare Annual Enrollment running from Oct. 15 to Dec. 7, now is a good time for a refresher on some key terms to help inform your coverage decisions for 2024.
A Medicare Part D plan’s drug list, or “formulary,” is typically grouped into tiers. The number of tiers may vary from plan to plan. Generally, drugs in a lower tier will cost less than drugs in a higher tier. Lower tiers generally include preferred generic drugs and may have low to no cost-sharing.
Higher tiers generally include brand-name drugs and specialty drugs, and tend to have higher cost-sharing. If you are taking a brand-name drug, talk to your provider to see if it can be replaced with a generic drug.
Deductible, copay and coinsurance
A drug deductible is the amount you pay out-of-pocket in a given plan year for covered prescription drugs before your plan begins to pay. The deductible can vary from plan to plan, with many Medicare Advantage Prescription Drug (MAPD) Plans having no drug deductible or only having a deductible for drugs on certain tiers.
Some plans charge a copay, which is a set amount (for example, $2) you may be required to pay as your share of the cost of a covered drug.
With coinsurance, you pay a set percentage (for example, 20%) as your share of the cost of the covered drug.
Together, deductibles, copays, and coinsurance are also known as “cost-share.” Like deductibles, copay and coinsurance amounts can vary from plan to plan, and a plan’s copay and/or coinsurance amounts may vary by drug tier.
A formulary is a list of the prescription drugs covered by a Part D plan. When considering a Part D plan, review the plan’s formulary to help make sure your drugs are covered.
Some Part D plans have preferred pharmacies in their network that offer covered Part D drugs at lower levels of cost-sharing than what you might pay at a non-preferred or “standard” pharmacy. If you use a preferred pharmacy, you may save money on your covered prescriptions. Make sure the plan offers access to pharmacies that are convenient for you.
Mail order pharmacy
Some plans also have mail-order pharmacy benefits, and you may be able to get prescriptions delivered to your home for a lower cost share than purchasing from a retail location. You may also be able to save on prescription drug costs by ordering 90-day supplies.
The coverage gap or “donut hole”
Most Part D plans have a coverage gap, also known as the “donut hole.” You enter the coverage gap when your total drug costs — including what you and your plan have paid for your Part D covered drugs — reaches a certain limit ($5,030 in 2024). While in the coverage gap, you are responsible for a percentage of the cost of your Part D covered drugs (5% in 2024).
In 2024, once your out-of-pocket costs reach $8,000 you exit the coverage gap and enter the catastrophic coverage phase, where you will then have no out-of-pocket costs for Part D covered drugs. Your Part D plan should track your out-of-pocket spending and your progression through the coverage phases, and this information should be accessible on your plan website and monthly statements.
Extra Help is a federal program that helps pay for some or most of the out-of-pocket costs of Part D coverage. It is also known as the Part D Low-Income Subsidy (LIS). If you meet certain income and resource requirements, you may be eligible for Extra Help.