Orlando Sentinel

How does the Medicare drug plan work?

Sun Sentinel

2:35 PM EDT, September 27, 2011


When first designing part D, Congress took steps to keep it affordable, but the result is a complex program with gaps and holes.

In the initial period, Medicare (through the drug insurer) typically pays for 75 percent of your drug costs. You pay only co-pays and sometimes a deductible of up to $320 in 2012.

For 2012, when the total cost of your drugs (what you paid plus what Medicare paid) hits $2,930, you reach a gap in coverage nicknamed the doughnut hole. In the gap, Medicare stops paying for your drugs and you pay all costs. Some insurers cover a limited amount of drugs in the gap, usually only generics.

You don't escape the doughnut hole until your total out-of-pocket spending reaches $4,700. That includes your deductible, your co-pays and all you spend in the gap (but not your monthly premiums). In a basic plan, this equates to $6,657.50 in total drug costs.

If your costs are high enough to push you beyond the gap, you reach "catastrophic coverage." Here, Medicare pays 95 percent of your drug costs. You pay the greater of 5 percent or a co-pay of $2.60 for generics and $6.50 for brands.

Surviving the doughnut hole often is the biggest headache in part D. Some people try to cope by buying from giant discount stores or from Canada. Fine, but know that any money you spend buying drugs outside the part D plan does not count toward getting you out of the gap.