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What is the Initial Coverage Limit? Can the limit vary between Medicare Part D plan providers?



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Question: What is the Initial Coverage Limit? Can the limit vary between Medicare Part D plan providers?
Category: Choosing a Medicare Plan

Answer: Your Initial Coverage Limit (or ICL) is the boundary between your Medicare Part D plan's Initial Coverage Phase and the Donut Hole or Coverage Gap.  The 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.

For instance, if your Medicare drug plan has an Initial Coverage Limit of $3,820 (in 2019), you can purchase Medicare Part D prescriptions worth $3,7820 before entering the Donut Hole portion of your Medicare Part D plan.

Your Medicare Part D plan's Initial Coverage Limit can change each year.

The standard Initial Coverage Limit started at $2,250 in 2006 and, over time, increased to $3,750 for 2018 and $3,820 for 2019.  You can view the standard Initial Coverage Limits for all years here:
https://q1medicare.com/PartD-The-MedicarePartDOutlookAllYears.php

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.

So if you buy a medication with a retail value of $100 and pay a $30 co-payment, the $100 retail cost counts toward meeting your Initial Coverage Limit or Donut Hole entry point (and the $30 you pay will count toward your Total out-of-pocket costs (TrOOP).

And yes, the Initial Coverage Limit (or ICL) can vary between Medicare plans.  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:

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 costs of 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 (the Medicare Part D plan pays the $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 $4,000), may 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, now there is a Donut Hole discount for both generic and brand name drugs purchased while in the Donut Hole.  Tthe Donut Hole will be reduced to a fixed 25% co-insurance cost-sharing structure by 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 $5,100), 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.


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