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 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 cost-sharing arrangements, with specific dollar amounts for the year 2008, are highlighted below. Note that the specific dollar amounts will vary from year to year, although the proportion of costs borne by beneficiaries and health plans stays the same.
Beneficiary costs per year:
- Annual deductible (No more than $275 in 2008 and $295 in 2009).
- 25% of TOTAL drug costs until the Coverage Gap begins. TOTAL drug costs is what the plan pays and what you pay combined. In 2008, a beneficiary's coverage gap begins when TOTAL drug costs exceed $2510 ($2700 in 2009), and ends when TOTAL drug costs reach $5726 ($6154 in 2009).
- 100% of TOTAL drug costs during the Coverage Gap, also known as ‘the Donut Hole'. In 2008 the Coverage Gap begins when the beneficiary's out-of-pocket costs for covered drugs exceed $559 and ends when the beneficiary's out-of pocket spending reaches $3216. In 2009, the Coverage Gap will begin when the beneficiary has spent $601 out-of-pocket, and will end when he/she has spent $3454. Any covered drug costs incurred after the coverage gap ends are covered under the "Catastrophic Coverage" portion of the benefit.
- 5% of drug costs after Catastrophic Coverage begins. In 2008 catastrophic coverage begins when TOTAL drug costs go above $5726, or $6154 in 2009.
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.