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How does the Medicare Part D Initial Deductible work? I use a drug with a $47 co-pay, but had to pay $340.

Category: Straddle Claims

In most cases, you must pay your Medicare Part D plan's Initial Deductible before you receive Medicare Part D coverage - just as you would with other types of insurance, such as automobile insurance.

For example, the standard 2021 Medicare Part D deductible is $445 and people must satisfy this deductible before their Medicare plan coverage begins - unless they are enrolled in a Medicare plan that excludes certain drugs from the plan's deductible (see Example 4, below).

Remember, your Medicare Part D plan's Initial Deductible can change every year or even be eliminated, so be sure to read your Annual Notice of Change letter (ANOC) that you receive in late-September each year to see how your Medicare plan coverage will change in the next year - or you can see how your 2021 Medicare plan changed from 2020 using our Medicare Part D 2020/2021 Compare tool or Medicare Advantage plan 2020/2021 Compare tool.

Here are a few examples of how your Initial Deductible affects your Medicare Part D prescription drug coverage.

Example 1: This is your first purchase and your Initial Deductible has not yet been met.

If you are just starting your new Medicare Part D plan coverage and your first purchase is a Tier 3 formulary medication that has a retail costs of $340 - and your Medicare plan has a standard deductible of $445 – and the Tier 3 medication has a $47 co-pay, you would pay the full retail price of $340 and you would then have an Initial Deductible balance of $105 ($445-$340) - this means you would still need to pay $105 out-of-pocket before your Medicare drug plan begins to share in the cost.

Example 2: This is your second purchase where the Initial Deductible is met and your co-pay is more than the retail balance (straddle claim).

From the example above, we ended with a $105 balance in our Initial Deductible and if your next purchase was a Tier 3 drug with a $133 retail cost and the plan has a co-pay of $47 for the drug, you would first meet the $105 deductible balance, then you have $28 of the retail cost that is unpaid ($133 retail drug price - $105 deductible balance) that would “straddle” into the second phase of your Medicare Part D coverage (Initial Coverage Phase) where you have a $47 co-pay for this Tier 3.

However, since you never pay more than the retail cost ($133), your additional cost-sharing would be the remaining $28 retail balance - instead of the $47 co-pay. Your total drug cost would still be $133 for the Tier 3 drug.  Your third drug purchase would be completely in your plan's Initial Coverage Phase (or your second phase of coverage) - and you would pay your $47 co-pay for a Tier 3 drug that has a retail price over $47.

Example 3: This is a second drug purchase where the Initial Deductible is met and your co-pay is less than the retail balance (straddle claim).

If you have an $105 balance remaining in your Initial Deductible (from Example 1) and you purchase a $415 Tier 3 drug that has a $47 co-pay, you would first pay the $105 balance to meet your $445 Initial Deductible, and the remaining amount of the retail price ($415 - $105 = $310) would go into (or "straddle" into) your Initial Coverage Phase where you have a $47 co-pay.

In this example, since your co-pay is less than the remaining retail balance, you would pay the $47 Tier 3 co-payment on the $310 balance falling (or "straddling") into the Initial Coverage Phase for a total drug cost to you of $152 ($105 + $47).  Again, the $47 is the co-pay on the $310 remaining retail balance of the $415 Tier 3 drug purchase that falls or “straddles” from your Initial Deductible into the Initial Coverage Phase.

Example 4: Tier 1 and Tier 2 drugs are excluded from the Initial Deductible.

Some 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 as if you were in your plan's  Initial Coverage Phase.

So, if you have a $445 standard deductible with Tier 1 and Tier 2 drugs excluded from the deductible, 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 by your purchase.  You can click here to read more about Tier 1 and Tier 2 exclusions.

Example 5: You only use Tier 1 and Tier 2 drugs that are excluded from the Initial Deductible and you now have a Tier 3 drug with a retail cost of $450 and a $40 co-pay.

Since you have not met your $445 deductible, your first Tier 3 drug purchase should cost you $450 and straddles the Initial Deductible and Initial Coverage phases.

You would first pay $445 of the $450 retail drug cost to satisfy your 2021 Initial Deductible, the remaining $5 portion of the retail cost ($450 - $445) would carry over to your Initial Coverage phase where you have a $40 co-pay.

But, since you never pay more than the drug plan’s retail cost, you are not charged the full $40 co-pay, but instead, you pay the remaining $5 retail balance.

When you make your second Tier 3 drug purchase, you would be in the Initial Coverage phase and pay only the $40 Tier 3 co-pay.

Example 6: Your Medicare Part D plan has a $445 deductible and your first purchase is a Tier 3 insulin that is part of your plan's Senior Savings Model.

You will pay a co-pay of $35 (or less) even though you have not met your plan's $445 initial deductible.

A Medicare drug plan that participates in the Senior Savings Model offers various types and forms of insulin for a co-pay of $35 (or less) and will keep the low cost-sharing throughout the plan coverage - until the final, Catastrophic Coverage phase - where you will pay 5% of the retail drug price for the remainder of the year.

So, if you are enrolled in a Medicare Part D plan that follows the Senior Savings Model, and you purchase a type of insulin on this program, you will pay a $35 (or less) co-pay in the plan's Initial Deductible, Initial Coverage Phase, and the Coverage Gap (or Donut Hole).

But remember, not all types of insulin may be covered by your plan's Senior Savings Model and may be subject to the initial deductible.

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