Understanding Medicare Part D – Prescriptions Drug Plans
Laying a Solid Foundation | Lesson 4

Costs for Medicare Drug Coverage

Now that we’ve talked about the basics, it’s time to talk cost.

Medicare Part D plans have a fixed monthly premium that your client will pay.

They will also have drug costs based on the dosage, quantity, and frequency of the prescription drugs they’re taking.

You can help minimize those expenses by finding them a plan that covers all of their prescriptions at a low cost, and has their preferred pharmacy in-network.

While PDP premiums are a fixed, monthly cost, prescription costs for beneficiaries will change throughout the year.

There are four coverage stages and PDP beneficiaries will move through the stages more quickly when their drug costs are higher.

All Part D plans must meet a minimum standard coverage set forth by the Centers for Medicare and Medicaid Services, CMS for short.

Each year, the standard changes. We’ll have a link in our resources so you can review the current year standard benefit amounts on

Let’s take a look at the Four Coverage Stages of Medicare:

Stage one is the annual deductible. Not all plans have a deductible, so in some cases, the beneficiary starts at stage two.

During stage one, the beneficiary will pay the full cost of prescriptions until the deductible amount is reached.

Stage two is the initial coverage stage. During this period of time, the beneficiary’s plan pays a portion of each prescription drug purchase, as long as the prescription is covered under the plan’s formulary.

The beneficiary pays the other portion, either through a set copay or a coinsurance amount.

Stage two ends when the amount spent by the beneficiary and the amount spent by their plan, on covered drugs, adds up to the initial coverage limit set by CMS for that year.

Stage three is the coverage gap stage, also known as the donut hole.

When a beneficiary is in this coverage gap, they are responsible for a larger portion of the costs of their drugs.

The amount they’re responsible for is based on a percentage, and that number is set by CMS each year.

Once the beneficiary and their PDP reach that limit set by CMS, they will exit the coverage gap stage and move on to the next one.

Stage four is the catastrophic coverage stage.

In this stage, the beneficiary will pay a low coinsurance or copayment amount for all of their covered drugs for the rest of the plan year.

This coinsurance or copayment amount is also set by CMS each year.

Typically, it means that the PDP and Medicare itself will cover about 95 percent of the cost of coverage.

When a new plan year begins, the cycle through these four coverage stages starts over as well.

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