Rhonda Kyong

Express Scripts Medicare Advisor
Ms. Kyong specializes in personal finance issues for Medicare recipients. Topics include managing healthcare costs in retirement.

Avoiding the Medicare Part D Coverage Gap

3 Simple Steps to Stay Out of the Medicare Donut Hole

In a standard Medicare Part D plan, the third stage of coverage is the Coverage Gap (also known as the “Donut Hole”). During this time you will pay more for your brand-name and generic medications. You’ll want to avoid entering the Gap, or at least delay your entry for as long as you can. To learn more about the Coverage Gap and the other coverage stages for Medicare Part D plans, please watch this video.


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Breaking Down Medicare Part D

A Closer Look at the Stages of Part D

All Medicare Part D plans are designed with four stages of coverage. You move from one stage to the next based on what you and your plan spend for your prescription drugs. Medicare sets the limits for each stage every year. It’s important to understand how the stages work and what you will pay out of pocket each year.

Here is a quick video that explains the process.

Stage One: Annual Deductible

The annual deductible is the first stage of coverage. If your plan has a deductible, you are responsible for paying the full cost of your prescription drugs until you meet the deductible amount set by your plan. The deductible amount depends on the type of plan you choose and changes from year to year. Some plans may have a $0 deductible, which means your coverage will begin right away and you’ll have to pay a copayment or coinsurance for your prescriptions. While plans with a $0 deductible may seem like a good way to save money, they sometimes have higher copayments or coinsurance, fewer drugs on their formulary or the drugs are covered on a higher tier. This can sometimes cost you more than a plan with a deductible, depending on the type and number of medications you take as well as the tier they are on.

Stage Two: Initial Coverage

Once you meet your deductible amount, you enter the initial coverage stage, which is when the plan begins to pay its share of the cost for your medications. During this stage, you pay a portion of the total cost for each of your prescription drugs through a copayment of coinsurance and your plan pays the rest. The amount you pay will vary depending on your plan and the “drug tier” your medication falls under. Most plans have four or five drug tiers. The higher the tier, the more your copayment or coinsurance will be. You will stay in this stage until the total amount you and your plan have spent on covered drugs, including your deductible, reaches an amount set by Medicare. Once you exceed that amount, you enter the next stage of coverage, called the Coverage Gap.

Stage Three: Coverage Gap

Depending on the number of medications you take and what tier they are on, you may never reach the Coverage Gap (also known as the donut hole). If you do reach this stage, your out-of-pocket costs will be higher. You continue in this stage until your out-of-pocket costs reach an amount set by Medicare. The amount includes your deductible, coinsurance and copayments in the Initial Coverage stage; the manufacturer’s discount you get on covered brand-name drugs in the Gap; and what you pay for medications while in the Gap. Your monthly premium and any copayments for drugs that are not covered by the plan do not count toward out-of-pocket costs. One way to avoid the Coverage Gap is to use generic drugs from day one or to switch to a generic during the initial coverage stage.

Stage Four: Catastrophic Coverage

If your out-of-pocket costs exceed the Coverage Gap limit, you will automatically enter the catastrophic coverage stage. At this point you only pay a small copay or coinsurance for your prescription drugs for the remainder of the year.

Don’t let the threshold changes confuse you. At the beginning of each new year, note the changes and always be sure you know which stage of coverage you are in.

Turning 65? We Can Help You Choose the Right Medicare Route

Here’s what you need to know about Medicare plans

Choosing the right Medicare plan is a big decision, particularly if you won’t have retiree coverage under an employer-sponsored plan. Medicare is complex and can be quite confusing. So making the right choice for your budget and health needs is as important as your decision when to retire.

First, there are two main roads to consider in choosing Medicare coverage, so it’s important to determine your needs before making a decision. It’s equally important to compare the various plans available in your region to ensure they fit your budget as well as meet your medical and prescription drug needs.

You can choose to take either Original Medicare or a Medicare Advantage Plan (Part C). Both routes include Part A (hospital insurance) and Part B (medical insurance) coverage. Either way, you will need to make sure you are eligible and/or sign up for Parts A and B. The best way to do this is to call Social Security directly. At the same time, you will need to decide if you want Medicare Part D coverage, either as a stand-alone Part D plan or as part of a Medicare Advantage Plan. Let’s take a closer look at both choices in this chart.

Now that you’ve reviewed this information, you might have a better idea of which option is right for you. The information below should help you make a more educated decision.

Consider Original Medicare and a Stand-Alone Part D Plan If You:

  • Wish to have more choice and access to a larger network of health providers and facilities
  • Have supplemental coverage from an employer to cover some costs and services Medicare does not cover
  • Do not mind coordinating coverage from multiple providers
  • Can buy a Medigap policy from a private company to help pay some of the costs that Original Medicare doesn’t cover, like copayments, coinsurance and deductibles. All Medigap plans pay 100% of your Part A coinsurance and hospital costs after your Medicare benefits are used. Depending on the type of Medigap plan you buy, additional benefits may include:
    • 50% – 100% of your Part B coinsurance or copayment
    • 50% – 100% of your Part A hospice care coinsurance or copayment
    • 50% – 100% of the coinsurance for skilled nursing care
    • 80% of your costs for a travel emergency outside the U.S.

Consider a Medicare Advantage Plan If You:

  • Like the convenience of having just one provider instead of coordinating coverage from multiple providers
  • Prefer a plan that is similar to what you may receive from an employer
  • Want to purchase a plan that covers additional services not available through Medicare, such as vision, dental and hearing plans
  • Are willing to use in-network doctors and medical facilities like in an HMO or PPO
  • Are not concerned about having coverage when traveling outside the U.S.

Medicare offers a lot of choices. Finding the best route takes a bit of research to make sure you’re on track for making the right decision for you.

If a Medicare Part D plan is the right route for you, we have four simple rules to help you have a smoother ride! Watch this video to learn more.

Understanding Your Part D Explanation of Benefits

How to read and use this helpful drug benefit summary

Most likely you get a lot of mail from your Medicare provider(s). One document to watch for is your monthly Medicare prescription drug plan “Explanation of Benefits” (EOB). This document lists the prescriptions you fill, any adjustments that were made from a prior claim, payments made by you and your plan, and any additional payment support from programs or organizations. Think of your EOB as a helpful tool for managing your Part D prescription drug claims and costs.

Why Your Part D EOB Is Important

This document provides a summary of the prescriptions you’ve filled in the previous month and information about your drug coverage, such as:

  • Whether you’ve met your deductible (if you have one) and, if not, how much more you need to spend before your plan begins to pay its share
  • What you have paid “out-of-pocket” to date for your prescriptions
  • What your plan pays and other payments that were made on your behalf through a program or organization like a State Pharmaceutical Assistance Program (SPAP)
  • Which Part D coverage stage you are in
  • Any deductible that you met or other costs from a prior plan that you were in this year

How to Read Your EOB

Many Part D plans use a “model” EOB document provided by the Centers for Medicare & Medicaid Services (CMS). See a sample EOB below.

If your plan uses a “model” document, the first page contains a list of the six sections of information it provides. Let’s take a look at the first three sections in detail.

SECTION 1: Your prescriptions in the last month

  • Chart 1 shows a list of your prescriptions filled by date in the past month and which pharmacy you used. Be sure to check the accuracy of this list.
  • The chart displays three columns that show the amount the plan paid, what you paid, and any other payments from an organization or program like an SPAP.

  • Near the bottom of the chart, you’ll see the monthly totals paid for your prescriptions. This total will include what was paid by the plan, by you, and by other programs on your behalf, if any. The information will be identified as “total drug costs”. The section will also provide your monthly out-of-pocket costs. At the bottom, you can view the year-to-date total for what you’ve spent out of pocket on prescriptions. Finally, a total of the three columns indicates what you, your plan, and other organizations, if any, have spent since January 1.This information will be identified as “year-to-date total drug costs”.

SECTION 2: The Part D drug payment stage you’re in

  • In this view, the stage you’re in is identified by a shaded outline—for more information on the stages of coverage, please go here. Here you will see a description of the dollar amount you and/or your plan need to reach before moving to the next stage of coverage. This information will be identified as “total drug costs”. It will also show your current year-to-date “total drug costs,” which indicate how close you are to moving to the next stage of coverage.
  • The bottom section of the shaded box “What happens next?” gives you the additional amount that you, your plan and others on your behalf (if any) need to spend in “total drug costs” to move to the next payment stage. This is especially important if you are in the Initial Coverage stage, because you will see how close you are to entering the Coverage Gap, when you will pay more for your prescriptions. Before you get too close to the gap, you might want to review your medications with your plan or doctor. Ask if there are ways to delay entering this stage, such as by switching to a generic medication.

SECTION 3: “Out-of-pocket” and “total drug costs” amounts and definitions

  • This section provides your monthly and yearly “out-of-pocket costs” and “total drug costs” along with definitions of what these costs include or do not include.

Additional Information

The last three sections provide information on various topics. Section four may include changes to your Drug List that affect drugs you take, such as a change to the coverage or cost of a drug. Section five tells you what to do if you find a mistake in the EOB or have questions. Additionally, you can find information about protecting yourself from fraud and how to contact the plan or Medicare with your concerns. Section six discusses the plan’s Evidence of Coverage, the benefits booklet that explains the plan and the rules you need to follow to obtain drug coverage. Certain chapters and topics are highlighted that will provide you with instructions if you have issues related to your drug coverage or difficulty paying for your drugs.

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Medicare and Other Health Insurance Coverage: Who Pays First?

Coordinating your benefits made simple

Having more than one source of healthcare coverage after you turn 65 is good. If you receive coverage from Medicare and Medicaid, an employer or other health plan, knowing which source will pay your expenses first can help you to understand and ensure that your benefits are coordinated. (more…)

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Saving Money by Using a Preferred Pharmacy

Finding cost savings by choosing the right pharmacy

Medicare Part D plans offer a network of pharmacies where you will fill your prescriptions. Each plan provider partners with different types of pharmacies to offer enrollees choice and convenience when filling a prescription. These may include independent community pharmacies, chain drug stores, grocery stores and major retailers. The size of the pharmacy network will vary by plan. While some plans may offer a network of 60,000 or more participating pharmacies nationwide, others may offer a smaller network of 30,000 or less. (more…)

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