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What is my Medicare Part D plan's Initial Coverage Phase?

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 2021 Initial Coverage Limit of $4,130.  In this case, after the $1000 drug purchase, you have $3,130 remaining in drug purchases before entering the 2021 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 $679, although you may only pay a $122 co-insurance. However, a friend with a different Part D plan may use the same medication and have a $70 co-insurance, but the retail price for their plan is around $414. 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 $4,130), your coverage costs may be $702 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 $4,130 in 2021 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/2021

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 ($445 in 2021). 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 $6,550 in 2021). 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.

Medicare Part D Coverage Phases

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