Your Medicare Part D plan's second phase is the Initial Coverage Phase and during this part of coverage you and your
Medicare Part D plan share in the cost of your medication purchases based on your plan's cost-sharing
(such as a $30 co-payment or 25% co-insurance). For example, if you purchase a mediation with a $100 retail cost,
you may pay a $30 co-pay (and the plan pays $70) or you pay $25 co-insurance (and the plan pays $75).
Entering the Initial Coverage Phase
If your Medicare Part D plan has an Initial Deductible (the first phase or part of coverage), you will pay the Initial Deductible before entering the
Initial Coverage Phase. If your Medicare plan has a $0 deductible, you will enter the Initial Coverage phase immediately, skipping over the first phase.
Exiting the Initial Coverage Phase
When the retail value of your drug purchases exceeds your Initial Coverage Limit
(ICL or Donut Hole entry point), you will leave your Initial Coverage Phase and enter the Coverage Gap or Donut Hole.
Please note that the Initial Coverage Limit is not measured by what you have spent on medications. Instead, the ICL is the total retail value of
your prescription drug purchases. So this is the amount that you pay for your prescriptions plus what your Medicare Part D plan is paying.
So if you buy a $1000 prescription drug and you pay a $60 co-pay (the Medicare Part D plan pays the other $940), the total $1000 retail cost is
credited toward your
2020 Initial Coverage Limit of $4,020
In this case, after the $1000 drug purchase, you have $3,020 remaining in drug purchases before entering the 2020 Donut Hole.
You may find that your plan's retail drug costs are not the same as another Medicare Part D plan's cost. In other words, you might buy a medication like
ADVAIR DISKUS MIS (250/50)
and your plan will have a retail price of $665, although you may only pay a $100 co-insurance. However, a friend with another Part D plan may use
the same medication and have a $88 co-insurance, but the retail price for their plan will be around $397. So, the same medication can have similar cost-sharing,
but different negotiated retail prices depending on the Medicare plan - and the different retail costs have different impacts on the Initial Coverage Limit.
As you can imagine, if your purchase of an expensive medication (for example, with a retail cost of over $4,020), your coverage costs may be $750 or less,
but the retail cost may exceed the Initial Coverage Limit and push you through the Initial Coverage Phase and into the Coverage Gap - with just
one single purchase.
The standard Initial Coverage Limit (entry point to the Coverage Gap or Donut Hole) can vary each year. For instance,
the Initial Coverage Limit is $4,020 in 2020 as compared to the Initial Coverage Limit of $2,250 in 2006. You can view the standard
Initial Coverage Limits for the past several years here: https://q1medicare.com/2020
At times, the Initial Coverage Limit can also vary between Medicare Part D plan providers. With the approval of Medicare (or CMS) Medicare Part D plans
are allowed to deviate from the annual standard Initial Coverage Limit value and a few companies may offer Part D plans with lower
Initial Coverage Limits - although this is rare in today's market.
A Summary of your Medicare Part D plan's four phases of coverage
(1) The Initial Deductible
is where you pay 100% of your retail drug costs
until you reach your deductible amount ($435 in 2020). Many people will enroll in a Medicare prescription drug plan with a $0 deductible and
effectively skip-over this first phase.
(2) The Initial Coverage Phase is where you and your Medicare Part D plan share the cost of your medication either as a fixed co-pay or a
percentage of retail cost (standard cost-sharing in the Initial Coverage Phase is 25%).
(3) The Coverage Gap or Donut Hole
is the plan phase you enter
once you exceed the Initial Coverage Limit and where you receive the
Donut Hole discount
on any formulary drug purchases.
(4) The Catastrophic Coverage Phase
is the last phase of your Medicare Part D plan
and you enter once your total out-of-pocket drug costs (TrOOP) exceed a certain point (over $6,350 in 2020).
During this phase you will exit the Donut Hole or Coverage Gap and will receive your medications at a low-fixed price,
paying around 5% of the retail price for the remainder of the year.