Changing costs as you move through your Medicare drug coverage.
All Medicare drug plans have phases and you move through these parts of coverage based on your formulary drug purchases.
The phases of Medicare drug coverage include: (1) An initial deductible (some drug plans have a $0 deductible and skip this phase) (2) Initial Coverage (3) Coverage Gap (or Donut Hole) and (4) Catastrophic Coverage (most people do not reach this last phase) and starting with the 2024 plan year, you pay nothing ($0) for formulary Part D drugs purchased in the Catastrophic Coverage phase.
As you move between these parts of your Medicare Part D drug coverage, the cost-sharing for a single formulary drug purchase will also change.
As an example, imagine you are purchasing a brand-name drug with a $400 retail cost and your plan has a copay of $35. Here is how your drugs costs will change as you move through your Medicare drug coverage:
Update: In 2025
(1) Initial Deductible (you pay 100% until your Initial Deductible plan's is met): $400
(2) Initial Coverage (you pay your Medicare drug plan's copay or cost-sharing): $35
(3) Once you have spent more than $2,000 on Part D formulary drugs, you reach Catastrophic Coverage and you pay: $0 for all Part D formulary drugs through the remainder of the year.
In 2024:
(1) Initial Deductible (you pay 100%): $400
(2) Initial Coverage (you pay plan's copay): $35
(3) Coverage Gap (or Donut Hole) (you pay 25% of retail): $100
(4) Catastrophic Coverage you pay: $0 -- In 2024, Catastrophic Coverage costs were reduced to $0 for all formulary Part D drugs.
Previous to 2024: Using the same example, of purchasing a brand-name drug with a $400 retail cost and your plan has a copay of $35. Here is how your drugs costs will change as you move through your Medicare drug coverage:
(1) Initial Deductible (you pay 100%): $400
(2) Initial Coverage (you pay plan's copay): $35
(3) Coverage Gap (or Donut Hole) (you pay 25% of retail): $100
(4) Catastrophic Coverage you pay no more than 5% of retail (or a fixed copay of $10.35, whichever is greater) - in this case 5% of $400 is $20.
But wait... there is even more variation when your formulary drug purchase crosses between parts of your drug coverage.
As you move across or between parts of your Medicare Part D plan coverage, the cost-sharing for a single formulary drug purchase will be calculated as a “straddle claim” where your cost can be higher than any of the individual stages of coverage.
Some good news: No matter what, your drug cost-sharing will never be more than the full negotiated retail cost of the drug.
The following graphic illustrates how the cost for the same drug can change throughout the plan year - and this is not considering that the retail price of your drug can change at any time.
2024 Example - with changes to Catastrophic Coverage cost-sharing
Claim that "straddles" the Initial Coverage and Coverage Gap phases.
Using our same example drug, if you are purchasing a brand-name drug with a $35 copay (the drug has a $400 retail cost) – and this year you have already purchased drugs with a retail cost totaling $4,930 – and your 2024 plan’s retail coverage limit is $5,030 (you have only $100 until reaching the Coverage Gap) – your cost-sharing will be calculated as adding your copay ($35 in our example) and 25% of the drug’s retail cost that is carrying over into the Coverage Gap.
So, in our example, $100 of the drug’s $400 retail price will meet the plan’s $5,030 initial coverage limit with the remaining retail drug cost of $300 ($400 - $100) carrying over into the Coverage Gap where you get the 75% Donut Hole discount on this retail balance ($300) for an added cost of $75 (25% of $300).
This means that your total drug cost-sharing for this straddle claim is $110 ($35 + $75).
After this “straddle claim”, your next drug purchase will fall only in the Coverage Gap where you will pay 25% of the full $400 retail drug price or $100 ($400 x 25%).
If you have high prescription drug spending (exceeding the total out-of-pocket spending limit (TrOOP), you will exit the Coverage Gap and enter Catastrophic Coverage where, starting with plan year 2024, you will pay nothing for any formulary drug purchases. You will stay in this last part of your Medicare drug coverage for the remainder of the year.
Bottom Line: Plan for changing prescription drug costs throughout the year. Your formulary drug costs can change (increase or decrease) as retail drug prices change and as you move through your Medicare drug plan coverage phases:
In our example:
(1) Your drug cost in the Initial Deductible: $400
(2) Your drug cost in the Initial Coverage phase: $35
(3) Your drug cost of with our Straddle Claim example: $110 ($35 + $75)
(4) Your drug cost in the Coverage Gap (Donut Hole): $100
(5) Your drug cost in Catastrophic Coverage, 2024 and beyond: $0
Changing retail drug prices and changing drug costs through your plan coverage.
We assumed in this example that our retail drug price of $400 remained the same throughout the year. However, retail drug prices can change at any time (unpredictably) and any increases (or decreases) in retail price will affect our example cost-sharing. For instance, if the price of our drug increases from $400 to $700, your cost in all phases except Catastrophic Coverage will all increase.