Part D Cost –
How much do I pay Part D?
Your drug costs will vary based on the plan you choose. Remember, plan coverage and costs can change each year. You may have to pay a premium, deductible, copayments, or coinsurance throughout the year. Learn more about these costs on the next page
Your actual drug coverage costs will vary depending on:
Your prescriptions and whether they’re on your plan’s list of covered drugs (formulary).
Monthly premium
Most drug plans charge a monthly fee that varies by plan. You pay this in addition to the Part B premium. If you’re in a Medicare Advantage Plan or a Medicare Cost Plan with drug coverage, the monthly premium may include an amount for drug coverage.
Yearly deductible
This is the amount you must pay before your plan begins to pay its share of your covered drugs. Some plans don’t have a deductible. In some plans that do have a deductible, drugs on some tiers are covered before the deductible.
Your deductible is the first cost phase. This is the amount you’ll pay at the pharmacy before cost-sharing begins. Some plans have a $0 deductible, but most have a deductible, up to the 2023 limit of $505.
Copayments or coinsurance
These are the amounts you pay for your covered drugs after the deductible (if the plan has one). You pay your share and your plan pays its share for covered drugs. If you pay coinsurance, these amounts may vary because drug plans and manufacturers can change what they charge at any time throughout the year. The amount you pay will also depend on the tier level assigned to your drug.
Initial Coverage Period
Begins: immediately if your plan has no deductible. Or, when the prescription payments you have made equal your plan’s deductible.
Your plan pays for a portion of each prescription drug you purchase, as long as that medication is covered under the plan’s formulary (list of covered drugs). You pay the other portion, which is either a copayment (a set dollar amount) or coinsurance (a percentage of the drug’s cost). The amount you pay will depend on the tier level assigned to your drug.
This stage ends when the amount spent by you and your plan on your covered drugs adds up to equal the initial coverage limit set by Medicare for that year. In 2023 that limit is $4,660. Your monthly premium payments do not count toward reaching that limit.
Coverage Gap Phase
Begins: when you and your plan have collectively spent $4,660 on your covered drugs.
If you reach the annual initial coverage limit, you enter the coverage gap phase, also known as the doughnut hole. While you’re in the coverage gap there is no cost-sharing. You pay all costs for your prescriptions. However, you do get discounts that help lower the cost of your medications.
In 2023, you get a 75 percent discount on most brand-name drugs, paid for by the manufacturer and the federal government. The remaining 25 percent is what you pay. You also get a 25% discount on all generic drugs.
You exit the coverage gap when your total out-of-pocket cost on covered drugs (not including premiums) reaches $7,400. Your out-of-pocket cost is calculated by adding together all of the following: yearly deductible, coinsurance, and copayments from the entire plan year, and what you paid for drugs in the coverage gap (including the discounted amounts you didn’t pay in that stage).
The costs that help you reach the catastrophic coverage phase include:
Your deductible;
What you paid during the initial coverage period;
Almost the full cost of brand-name drugs (including the manufacturer’s discount) purchased during the coverage gap;
Amounts paid by others, including family members, most charities, and other persons on your behalf; and
Amounts paid by State Pharmaceutical Assistance Programs (SPAPs), AIDS Drug Assistance Programs, and the Indian Health Service.
Costs that do not help you reach catastrophic coverage include
monthly premiums,
the cost of non-covered drugs,
the cost of covered drugs from pharmacies outside your plan’s network,
and the 75% generic discount.
Catastrophic coverage
During catastrophic coverage, you will pay 5% of the cost for each of your drugs, or $3.60 for generics and $8.95 for brand-name drugs (whichever is greater).
Standard Part D Benefits for 2023
For 2023, the standard benefit requires the beneficiary to pay:
•a $505 deductible
•25% of prescription drug costs during the initial coverage phase – that is, between the deductible and initial coverage limit of $4660 or the actuarial equivalent to an average expected coinsurance of no more than 25 percent of actual cost during the initial coverage phase.
•25% of the cost of generic drugs and 25% of the undiscounted costs of brand name drugs during the “Coverage Gap” phase –
Example 1 – Standard Benefits.
Mr. James is enrolled in a PDP with no monthly premium and a standard benefit structure. He takes 3 prescription drugs with a total cost of $6000 annually. Mr. James pays $1878.75 for his drugs ($6000 (total drug cost) – $505 (deductible) = $5495 x .25 (initial coverage cost sharing percentage) = $1373.75 + $505 (deductible) = $1878.75
Note that, from a beneficiary perspective, there is no longer a “gap.” However, spending after the initial coverage limit during the so-called coverage gap phase remains relevant, because, during this period of drug spending, drug manufacturers are responsible for 70 percent of the cost of the drug (known as the manufacturer discount). This 70 percent is attributed to beneficiary out-of-pocket costs and counts toward the spending necessary to reach the catastrophic coverage phase even though beneficiaries do not pay it.
Part D Standard Benefits for 2023, Catastrophic Coverage
Once beneficiary out-of-pocket costs (including the 70 percent drug manufacturer discounts) reach a total of $7,400, the beneficiary is through the “coverage gap” and reaches catastrophic coverage.
•The out-of-pocket costs that count toward reaching the catastrophic limit are known as “true out-of-pocket” costs or TrOOP. In some instances, amounts not directly paid by the beneficiary, including the manufacturer discounts, count toward TrOOP.
After reaching the annual out-of-pocket threshold, the beneficiary pays either a co-pay of $4.15 for generic drugs or $10.35 for brand name drugs or a co-insurance of 5%, whichever is greater.
Part D Plan Benefits: The Standard Benefit Plan for 2023 (Illustrated)
Medicare Module 3 – Part D Standard Benefit Enrollee Cost Sharing
$505 (deductible) Deductible Enrollee pays 100%
Initial Coverage Enrollee Pays 25% of prescription drug costs
Coverage “Gap” * Enrollee pays 25% of prescription drug costs for generic and 25% of undiscounted cost for brand name
$4660 total drug costs (Initial coverage limit)
Catastrophic Coverage Enrollee pays greater of 5% of prescription drug cost
or
$10.35 brand name/$4.15 generic
$7400 (out of-pocket threshold)
* In the coverage gap, as previously noted, drug manufacturers pay 70 percent of the cost of brand name drugs through a discount. Although not paid by the enrollee, the discounted amount for brand name drugs counts toward the enrollee’s annual out-of-pocket threshold. But the enrollee cost-sharing for brand name drugs is based on the undiscounted cost. Coverage “Gap” Percentage Division: Enrollee 25%, Manufacturer Discount(s) 70%, Plan 5%
Part D Premiums
•Part D plans generally charge a premium.
o Typically, a higher premium means lower out-of-pocket costs for the plan.
•Part D enrollees have three options for paying their Part D premium.
o An automatic electronic monthly mechanism, such as withdrawal from their checking or savings bank account or automatic charge against their credit or debit card.
o Direct monthly billing from the plan.
o Automatic deduction from their monthly Social Security Administration (SSA) benefit check.
▪ Typically, it takes 2-3 months for SSA withholding to begin or end.
▪ When withholding begins, it will be for the 2-3 months of premiums owed.
•Generally, the beneficiary must stay with the premium payment option he or she chooses for the entire year.
•If an enrollee does not choose an option, the beneficiary will be billed by the Part D plan monthly.
