Your Initial Coverage Limit (or ICL) is the total retail value of formulary drug purchases that you can make
before entering your Medicare Part D plan's Donut Hole or Coverage Gap - in short, the ICL acts as the boundary between your Medicare Part D plan's Initial Coverage Phase (where you and your drug plan share the cost of your drug purchases) and the Coverage Gap (where you receive a fixed 75% Donut Hole discount
on all formulary drugs).
How do drug purchases affect your ICL?
If your Medicare drug plan has an Initial Coverage Limit of $4,020 in 2020
($3,820 in 2019), you can purchase Medicare Part D prescriptions worth $4,020 before entering the Donut Hole portion of your Medicare Part D plan.
So, if you have not entered the Coverage Gap and buy a
formulary medication with a retail value of $100 and pay a $30 co-payment, the
retail cost counts toward meeting your Initial Coverage Limit or Donut
Hole entry point (and the $30 you pay will count toward your Donut Hole exit point or Total out-of-pocket costs (TrOOP)
Remember that your Medicare Part D plan's Initial Coverage Limit can (and probably will) change each year. For example, the standard Initial Coverage Limit
first started at $2,250 in 2006 and, over time, increased to $4,020 for 2020. You can view the
standard Initial Coverage Limits for all years here:
So, since the ICL increases most every year, can I buy more each year before the Donut Hole?
As the Initial Coverage Limit has increased almost every year, you would expect to be able to buy more medications each year before entering the Coverage Gap, but you may find that you can buy fewer formulary drugs before entering the Donut Hole due to increases in retail drug prices. Again, the ICL is not measured by the amount you actually paid for your Medicare Part D drugs, but instead is the retail value
of the medications you purchase.
Do all Medicare Part D plans have the same ICL?
Medicare drug plans can offer a variation of the standard Initial Coverage Limit (ICL). However, most stand-alone Medicare Part D plans adopt the standard Initial Coverage Limit that is set by the Centers for Medicare and Medicaid Services (CMS) each year. Many Medicare Advantage plans that include prescription drug coverage (MAPDs) provide a variation on the CMS standard ICL
Please see the related question:
What costs count toward entering the Donut Hole or Coverage Gap?
And here is some background information about how the Initial Coverage Limit fits into your drug coverage
Your Medicare Part D prescription drug plan includes four different phases:
(1) The Initial Deductible
- where you pay 100% of your retail drug costs. Some 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
- you and your Medicare Part D plan will share in the cost of your medication purchases. When the retail cost of your drug purchases exceeds your Initial Coverage Limit
(or Donut Hole entry point), you will leave your Initial Coverage Phase and enter the Coverage Gap or Donut Hole.
Please note: the Initial Coverage Limit is the total retail
your prescription drug purchases. This is the amount that you pay plus
what the Part D plan is paying. So if you buy a $100 medication and you pay a $30 co-pay (your Medicare Part D plan pays $70). The $100 retail cost is credited toward your Initial Coverage Limit.
Please also note that the single purchase of an expensive medication
(for example, a drug with a retail cost of over $4,500), will push you through the Initial Coverage Phase and into the Coverage Gap - or beyond.
As noted, the Initial Coverage Limit can 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.
In other words, with some Medicare Part D plans you will enter the Donut Hole or Coverage Gap earlier or faster than with other Part D plans. Be sure to understand the benefits before enrolling or ask questions during the Annual Enrollment Period (October 15th through December 7th). If you wait until January to learn about your plan, you may be "locked-in" to your new Medicare Part D plan coverage for the entire year.
(3) The Coverage Gap or Donut Hole
- once you exceed the Initial Coverage Limit you enter the Donut Hole where you were originally responsible for 100% of your drug costs (so this was like a second deductible phase). However, the Donut Hole discount
for both generic and brand-name drugs purchased while in the Donut Hole will reduce your cost-sharing for purchases made while in the Coverage Gap to a fixed 25% co-insurance in 2020. You can read more about the current Donut Hole Discount here: https://Q1FAQ.com/470.html
(4) The Catastrophic Coverage Phase
- once your total out-of-pocket drug costs exceed a certain point (for instance, over $6,350 in 2020
and $5,100 in 2019), 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 brand drugs for the remainder of the year.