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It sounds crazy, but you may find yourself paying different amounts for the same medicines at different times of the year. That’s because Part D drug coverage is generally divided into four phases over the course of a calendar year. Whether you encounter only one phase or two, three, or all four depends mainly on the cost of the prescription drugs you take during the year — unless you qualify for Extra Help (see Chapter 4). Here’s the breakdown:

 Phase 1, the annual deductible: If your Part D drug plan has a deductible, you must pay full price for your drugs until the cost reaches a limit set by law ($435 in 2020) and drug coverage actually begins. Many plans don’t charge deductibles or charge less than the limit. But if your plan has a deductible, this period begins on January 1 or whenever you start using your Medicare drug coverage.

 Phase 2, the initial coverage period: This stage begins when you’ve met any plan deductible. Otherwise, it begins on January 1 or whenever you start using Medicare drug coverage. You then pay the co-payments required by your plan for each prescription, and the plan pays the rest. This period ends when the total cost of your drugs — what you’ve paid plus what your plan has paid — reaches a certain dollar limit set in law ($4,020 in 2020).

 Phase 3, the coverage gap: This gap — often called the doughnut hole — begins when you hit the limit of initial coverage and ends if and when the amount you’ve spent out-of-pocket on drugs from the beginning of the year hits another dollar limit set in law ($6,350 in 2020).Until 2011, you would’ve had to pay 100 percent of the cost of your drugs in the gap. Now you pay a lot less because under the Affordable Care Act, the gap is gradually shrinking. In 2020, your plan will cover at least 5 percent of the cost of covered brand-name drugs, plus you’ll get a discount of 70 percent on brand-name drugs from the manufacturer, so the amount you will pay is 25 percent of the cost. Also, as of 2020, Medicare will cover 75 percent of the price for generic drugs for those in the coverage gap, so in 2020, you will pay only 25 percent for both generic and brand-name drugs. These discounts come partly from the drug manufacturers and partly from the government.What’s more, the 50 percent that the drug manufacturers contribute to the discounts on brand-name drugs counts toward the dollar out-of-pocket limit that gets you out of the gap; that is, you get credit for having paid full price even though you’re receiving the discount. But for any discounts funded by the government, such as those for all generic drugs and anything above 50 percent for brands, only what you pay counts toward getting out of the gap. (I explain the gap in more detail in Chapter 14.)

 Phase 4, catastrophic coverage: If your drug costs are high enough to take you through the gap, coverage kicks in again. At this point, your share of the costs drops sharply. You pay no more than 5 percent of the price of each prescription. Catastrophic coverage ends on December 31. The next day, January 1, you return to Phase 1 (or Phase 2 if your plan has no deductible), and the whole cycle starts over again.

Figure 2-1 is a quick way of looking at the same cycle of coverage.

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FIGURE 2-1: Phases of Part D drug coverage and dollar limits.

Figure 2-2 shows this information in a different way. Here, you can see examples of brand-name drugs costing (for the sake of simplicity) $100, $200, or $300 per one-month prescription — and what you’d pay for them in each phase of coverage. These examples assume co-pays during the initial coverage period of $45 for each prescription, although co-pays vary widely among Part D plans.

© John Wiley & Sons, Inc.

FIGURE 2-2: Examples of costs through four phases of coverage.