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Medicare Part D: The Four Phases of Prescription Drug Coverage
Medicare Part D helps Medicare beneficiaries cover the costs of prescription drugs. As a Medicare beneficiary, out-of-pocket prescription drug costs may change overtime depending on which phase you are in. The four phases of prescription drug coverage (Medicare Part D) include:
Phase 1: Medicare Deductible Period
The first phase of Part D (Medicare Prescription Drug plan) is the Medicare Deductible Period. During the deductible period, you’ll be expected to pay the full negotiated amount for your covered prescription drug costs until you meet your Medicare Part D deductible.
Deductibles vary from plan to plan, but it should not exceed $4351 in 2020. Some plans even have a $01 deductible, which means you would skip phase 1 and move onto phase 2, the Medicare Initial Coverage Period.
Phase 2: Medicare Initial Coverage Period
The Medicare Initial Coverage Period starts immediately if you do not have a deductible ($0) or if your prescription drug payments equal your Medicare Part D plan’s deductible (max $435).
During the Medicare Initial Coverage Period, your Medicare Part D plan will pay some of the prescription drug costs, while you will pay a copayment (a set dollar amount) or coinsurance (a percentage of the drug’s cost) set by your plan.
Once the total retail costs of your prescriptions reaches $4,020 (the amount you pay and your plan pays), the Medicare Initial Coverage Period ends.2 Some Medicare beneficiaries will stay in this period for the entire year.
Phase 3: Medicare Coverage Gap (Donut Hole) Period
The Medicare Coverage Gap, sometimes still known as the Donut Hole, starts once you and your plan have spent a total of $4,0203 on your covered prescription drugs. In this period, you will pay 25% of the retail cost for both brand name and generic prescription drugs. Once the total out-of-pocket costs for your prescription drugs reaches $6,3504, the Medicare Coverage Gap (Donut Hole) period ends.*
Phase 4: Medicare Catastrophic Coverage Period
The Medicare Catastrophic Coverage Period is the fourth and final phase of Medicare Part D. The Catastrophic Coverage Period starts once you have reached $6,350 in out-of-pocket prescription drug costs.
While in the Medicare Catastrophic Coverage Period, Medicare Part D beneficiaries are only required to pay a small coinsurance amount or copayment during the remainder of the calendar year. In 2020, beneficiaries in the Catastrophic Coverage Phase will pay 5% of their prescription drug costs (name-brand and generic) or $3.60 for generic drugs and $8.95 for name-brand drugs; whichever is greater. The Medicare Part D phases start over again for prescription drug coverage once January 1st of the next year hits.
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