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What do I pay when my Medicare Part D plan excludes Tier 1 and Tier 2 drugs from the plan's initial deductible?

You will pay the Tier 1 or Tier 2 co-payment for your medications, if these two formulary tiers are excluded from the initial deductible - even when the initial deductible is not yet met.

If your Medicare Part D plan does not exclude any tiers from the initial deductible, then you must pay your Medicare Part D plan's initial deductible before you receive any coverage from your Medicare Part D plan.  For example, the standard 2021 Medicare Part D deductible is $445 and you must pay the full retail price for your formulary drugs until you have spent $445 out of pocket.  When the initial deductible is met, then the Medicare plan coverage begins and you will only pay a portion of the retail drug cost.

Example for a typical Tier 3 drug impacting the initial deductible

If you have a Tier 3 formulary medication that costs $340 (retail) and your Medicare plan has a standard 2021 deductible of $445 – and the Tier 3 medication has a $43 co-pay, you would pay full retail of $340 and you would have a deductible balance of $105 ($445-$340).  And the full $340 retail value of the formulary drug would count toward reaching your plan's Initial Coverage Limit and entering the Donut Hole or Coverage Gap.

Example for Tier 1 and Tier 2 drugs excluded from the initial deductible

An increasing number of Medicare Part D plans exclude Tier 1 and Tier 2 drugs from the plan's initial deductible and these low-costing drugs are not impacted by your initial deductible and have immediate coverage.  So, if you have a $445 standard deductible with Tier 1 and Tier 2 drugs excluded, and you purchase a Tier 2 generic drug that has a retail price of $15 (with a co-pay of $3) – you pay only the $3 co-pay and your $445 deductible is not affected.

As a note of interest . . .
In this example, if you were to only purchase Tier 1 and Tier 2 drugs all year, your $445 deductible would never be met.  But, if your total retail drug cost exceeds your Initial Coverage Limit ($4,130 in 2021), you would still enter your plan's Coverage Gap or Donut Hole.

Question:  How do you know whether a Medicare plan excludes Tier 1 and Tier 2 drugs from the initial deductible?

You will notice when you visit our Medicare Part D plan finder (https://PDP-Finder.com) that Medicare Part D plans will be marked under the "Deductible" section with the text "Tier 1 and 2 exempt".

In addition, when you view the Medicare plan details (by clicking on the Medicare plan name), you can see in the plan details that Tier 1 and Tier 2 drugs may be excluded from the plan's initial deductible.  As an example, in 2021, Florida has 28 stand-alone Medicare Part D plans that cover “MONTELUKAST SOD 10 MG TABLET [Singulair] (30 TABLETS) (NDC: 65862057490)” and you can click on the Medicare plan name to see more details of the coverage for a particular plan.

You can also learn more by contacting your Medicare Part D prescription drug plan by calling the toll-free number for Member Services found on your Member ID card.  You can read more about your drug plan coverage in your Medicare plan's Evidence of Coverage document where you might find in Chapter 4, "What you pay for your Part D prescription drugs":

"During the Deductible Stage, you pay the full cost of your Cost-Sharing Tier 3, Cost-Sharing Tier 4, and Cost-Sharing Tier 5 drugs" and then, "You stay in the Deductible Stage until you have paid $445 for your Cost-Sharing Tier 3, Cost-Sharing Tier 4, and Cost-Sharing Tier 5 drugs".

Further on in the Evidence of Coverage Chapter 4 you can read:

"The Deductible Stage is the first payment stage for your drug coverage. You will pay a yearly deductible of [annual deductible amount] on Cost-Sharing Tier 3, Cost-Sharing Tier 4, and Cost-Sharing Tier 5 drugs. You must pay the full cost of your Cost-Sharing Tier 3, Cost-Sharing Tier 4, and Cost-Sharing Tier 5 drugs until you reach the plan's deductible amount. For all other drugs you will not have to pay any deductible and will start receiving coverage immediately.

•  Your "full cost" is usually lower than the normal full price of the drug, since our plan has negotiated lower costs for most drugs.
•  The "deductible" is the amount you must pay for your Part D prescription drugs before the plan begins to pay its share.

Once you have paid [the annual deductible amount] for your Cost-Sharing Tier 3, Cost-Sharing Tier 4, and Cost-Sharing Tier 5 drugs, you leave the Deductible Stage and move on to the next drug payment stage, which is the Initial Coverage Stage."

The Initial Deductible and the Donut Hole.

Remember, your Medicare Part D plan's Initial Deductible does not affect when you enter the Donut Hole or Coverage Gap.  You enter the Donut Hole based on the retail value of the prescriptions you purchase - not the coverage cost (what you pay).

However, your Initial Deductible (your out-of-pocket spending) will impact how quickly you exit the Donut Hole. You can click here to read more about the impact of your Initial Deductible.

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