Like other types of insurance, Medicare prescription drug plans cover a portion of the costs, and you pay a portion. In other words, it is a cost-sharing arrangement. People who qualify for financial assistance from the government (known as "Extra Help") pay less. It is always important to keep in mind that plans are likely to increase their premiums and costs each year.
Medicare prescription drug plans are allowed to organize the cost-sharing arrangements in different ways, as long as they do so fairly as required by law. For example, some plans have higher premiums because they offer some coverage through the Coverage Gap, but provide the same dollar value of benefits in the long run.
The "standard" cost-sharing arrangements for the years 2009 and 2010 are highlighted below. Note that drug plans are free to vary the specific arrangement of benefits from this standard, and that all costs are likely to increase from year to year.
Standard beneficiary costs per year:
- Monthly premium
- Premiums vary among different plans. The average prescription drug plan monthly premium in 2010 will be approximately $39, an 11% increase over the 2009 average of $35.
- Annual deductible (No more than $295 in 2009 and $310 in 2010).
- 25% of TOTAL drug costs until the Coverage Gap begins. TOTAL drug costs are what the plan pays and what you pay combined.
- In 2009, a beneficiary's Coverage Gap begins when TOTAL drug costs exceed $2700 ($2830 in 2010), and ends when TOTAL drug costs reach $6154 ($6440 in 2010).
- 100% of TOTAL drug costs during the Coverage Gap, also known as "the Donut Hole".
- In 2009 the Coverage Gap begins when the beneficiary's out-of-pocket costs for covered drugs exceed $601 and ends when the beneficiary's out-of-pocket spending reaches $3453.
- In 2010, the Coverage Gap will begin when the beneficiary has spent $630 out-of-pocket, and will end when he/she has spent $4550.
- 5% of drug costs after Catastrophic Coverage begins. Any covered drug costs incurred after the Coverage Gap ends are covered under the "Catastrophic Coverage" portion of the benefit. In 2009 catastrophic coverage begins when TOTAL drug costs go above $6154, or $6440 in 2010.
Drug Plan costs per year:
- $0 until the annual deductible is paid by the beneficiary
- 75% of TOTAL drug costs until the Coverage Gap begins
- $0 during the Coverage Gap
- 95% of TOTAL drug costs after Catastrophic Coverage begins
Again, all Part D plans are allowed to design their cost-sharing arrangements differently, as long as they pay their portion of the total value.
Because people's prescription drug needs differ, each person will have different out-of-pocket costs at any one point in time. Only people with very high annual prescription drug costs, such as people with MS on a disease modifying medication, can be expected to reach the Coverage Gap and possibly the Catastrophic Coverage limit each year. Some may hit the Coverage Gap in January, and others later in the year or not at all. Those who do hit the Coverage Gap can find it very financially draining, and planning their personal finances in anticipation of it each year should be an important goal.