Medicare Part D has 4 different phases that each member passes through during each year. Each of these phases have different coverage benefits for the member. It is important to understand these phases to know the financial impact that your health expenses can have on you and also when you should opt for that elective surgery.

1. Deductible Phase

This is the first phase and in this phase, the member is responsible for the entire dollar amount of the medication/s up to the Plan’s deductible amount. For example, the Plan’s deductible amount is $400. The member goes to the pharmacy to pick up his/her medication and the total cost of the medication is $600. The member will have to pay the entire amount up to the plan deductible which in this case means the member will have to pay $400 for the deductible phase. The remaining $200 goes into the next phase called the Initial Coverage Phase. If the total cost of the drug is less than the Plan’s deductible amount, then the member pays the full amount and remains in the deductible phase. For example, at the pharmacy, the total cost of the drug is $300 and the Plan’s deductible is $400. The member would have to pay the full cost of the drug $300 and would remain in the deductible phase. The next time the member picks up a medication, the remaining deductible would be $100 after which the remaining amount goes into the Initial Coverage Phase.

Please note that some plans may choose not to have a deductible phase and in that case, when the member goes to pick up their medication at the pharmacy, they start off the year being in the Initial Coverage Phase. The standard deductible amount for 2021 is $445.

2. Initial Coverage Phase

In the Initial Coverage Phase, the member pays a fixed copay or a coinsurance, depending on the plan. The standard coinsurance for the Initial Coverage Phase is 25% which means that the member pays only 25% of the drug cost in this phase and the remaining 75% is paid by the plan. For example if the member already met the deductible amount and is in the Initial Coverage Phase, and goes to pick up a medication that costs $100, the member would only be required to pay $25 for the medication.

Two dollar amounts that the plan keeps a count on is the total drug cost and the amount the member paid (True Out of Pocket TROOP). In the deductible phase, these 2 values would be equal due to the fact that the member pays the total drug cost until the deductible is met. So the total drug cost would be equal to the TROOP in the deductible phase. In the initial coverage phase, since the member is only paying 25% of the total drug cost, the TROOP would be 25% of the total drug cost.

The member remains in the initial coverage phase until the total drug cost accumulates to $4,130 for the year 2021. Once the total drug cost accumulates to $4,130, the member moves into the next phase known as the Coverage Gap Phase

3. Coverage Gap Phase

Once the member enters the Coverage Gap Phase, as the name suggests, there is a gap in coverage resulting in the member responsible for 95% of the total drug cost and the plan responsible for only 5%. In lay man terms, this phase is also called the ‘Donut Hole’ phase of coverage.

This may sound like a very high member responsibility in the coverage gap phase however this is not the case. Manufacturers for brand drugs are required to provide a discount to Medicare beneficiaries of 70%. This means that out of the 95% member responsibility in this phase, there is a 70% Manufacture discount resulting in a member pay of 25%. The plan counts the Manufacture discount as part of the TROOP. To put this in perspective, if the member picks up a brand medication in the coverage gap phase that costs $100, the manufacture discount would be $70, Member pay $25 and the TROOP that the plan keeps track of would be $95.

The member remains in this coverage gap phase till the TROOP reaches $6,550 for 2021. Note that the member moves on from this phase once the TROOP reaches the designated dollar amount and not the total drug cost as for the previous phases.

4. Catastrophic Coverage Phase

Once the member reaches this phase, the member is only responsible for 5% of the drug cost. This is the final phase and the member remains in this phase for the rest of the year. Once the year is over, the cycle repeats and the member starts back in the deductible phase and moves through these phases again.

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