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Glossary of Medicare Prescription Drug Plan Terms


Glossary of Medicare prescription drug plan terms

Annual deductible
The amount that Part D enrollees must pay for prescription medications before the Part D plan begins to pay.

Catastrophic Coverage
In general, catastrophic coverage offers protection against very high out-of-pocket costs for people with expensive health care needs. All Medicare Part D plans include catastrophic coverage for prescription costs.

Coverage Gap
Also called a “Doughnut Hole,” this is a gap in insurance coverage during which you must pay the majority of your drug costs.  As a result of the Affordable Care Act, the coverage gap is being phased out and will be completely eliminated in 2020.

Creditable Coverage
Drug coverage that is “just as good as” coverage provided by Medicare prescription drug plans. Your current insurer must tell you if the drug coverage you now have qualifies as "creditable coverage".

The list of prescription drugs that your private health plan, like a Medicare HMO, will pay for either in part or in full. Drugs not on the formulary are generally not covered by private health plans. Off-label medications (those prescribed for a reason other than the use approved by the FDA) also are not generally covered by Medicare Part D Plans.

Initial Enrollment Period
The Initial Enrollment Period is your first chance to enroll in Medicare, including Part D. It begins three months before the month you meet the eligibility requirements for Medicare (usually your 65th birthday or 25th month after you have been approved for Social Security Disability Insurance) and ends 3 months after the month you are first eligible. 

Lifetime Penalty
Medicare prescription drug plans are allowed to penalize you for enrolling late by adding 1% to your monthly premium for every month you failed to enroll if you were eligible to enroll and did not if you did not have creditable coverage.

Open Enrollment Period
The period of time between October 15 and December 7 of every year when you can change your Medicare private drug plan and/or your Medicare health plan choice for the following year. This is also the time you can enroll in the Medicare prescription drug benefit (Part D) if you do not enroll during your Initial Enrollment Period (you may have to pay a premium penalty if you enroll during this time unless you had drug coverage from another source that was at least as good as Medicare's and you were not without that coverage for more than 63 days). Your new coverage will begin January 1.

Prior-authorization (also known as pre-authorization or pre-approval)
This common practice among health plans requires that a beneficiary must get a prescription for a drug approved by the plan before the pharmacy can fill it.

Tier Formularies
Some formularies sort drugs into “tiers” – medications assigned to higher tiers have higher out-of-pocket costs. Generally, more specialized drugs (such as injectable drugs and those that require special handling) will be assigned to the higher tiers.


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