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Medicare Part D Glossary

Medicare Part D Words You Need to Know


Updated December 07, 2010

Medicare Part D Glossary

Medicare Part D Glossary - Learn the words you need to know about Medicare Part D drugs plans.

Alex Raths/iStockphoto

If you are new to Medicare and are choosing a Medicare Part D prescription plan, it’s important to fully understand the terms, or words Medicare uses to describe your drug coverage. The following is an alphabetical listing of Part D vocabulary.

Annual Deductible: The amount you (or others on your behalf) must pay out of pocket before your Part D plan starts to pay for your covered medications. Typically, the annual deductible in a Part D plan is up to $310. Some plans with higher premiums have a lower or no annual deductible.

Catastrophic Coverage: The last Medicare Part D drug payment stage. In this stage, you only are required to pay a small copayment or coinsurance for each medication covered by your plan. Your plan pays the remaining costs for your drugs until the end of the year.

Coinsurance: A percentage amount of a medication’s total cost. Some Part D plans require a coinsurance for each of your covered drugs instead of a copayment. For example, in one plan you may have to pay 20% of a drug’s cost (coinsurance) while in a different plan you may have to pay a set fee (copayment) of $15.00 for the same drug.

Copayment: A set amount you are required to pay for each of your covered drugs.

Coverage Gap: The Medicare Part D drug payment stage in which you have to pay all costs out-of-pocket for your prescriptions up to a yearly limit. Some plans may offer some coverage for generic medications in the coverage gap. These plans however may charge a high premium. The gap, also known as the donut hole, will shrink over time due to changes in Medicare required by the health reform law (Affordable Care Act).

Drug Payment Stages: Medicare Part D plans have four drug payment stages: annual deductible, initial coverage, coverage gap, and catastrophic coverage. In each stage, the amount you pay and your plan pays for your medications is different.

Drug Tiers: In most Part D plan drug formularies, covered medications are placed into one of four tiers that are used to determine the amount of your copayment or coinsurance. Typically, formulary tiers consist of:

  • Tier 1: Lowest copayment – Includes most generic drugs.
  • Tier 2: Medium copayment – includes many common brand-name drugs (called preferred brands) and some higher-cost generic drugs.
  • Tier 3: Highest copayment – includes non-preferred brand name drugs and non-preferred generic drugs.
  • Tier 4: Also known as the “Specialty Tier” – includes unique and often very high-cost medications. You can expect to pay a significant coinsurance for drugs in this tier.

Formulary: The list of medications covered by your Medicare Part D plan. If your drug is not on your plan’s formulary, you will have to pay the full amount of the cost of the drug.

Generic Drugs: When the patent of a brand-name medication expires, a generic version of the drug can be produced and sold. Generic versions of a drug must use the same active ingredients as the brand name drug, and it must meet the same quality and safety standards. Using a generic drug may save you money on your copayment or coinsurance and may help you stay out of the donut hole.

Initial Coverage: The Medicare Part D drug payment stage during which you pay a copayment or coinsurance for each covered medication you buy. Your plan pays the balance of the drug’s cost.

Limited Access Drugs: Your medication may be considered a “limited access drug” if:

  • The FDA requires that the drug only can be given out by certain facilities or doctors.
  • Special handling, coordination among providers, or patient education is needed to be able to hand out the medication and it can’t be done at a local network pharmacy.
An example of a limited access drug is Tracleer, which is used to treat pulmonary arterial hypertension.

Network Pharmacies: The pharmacies where you can get your prescriptions filled. They are called “network” pharmacies because they have a contract with your Part D plan. If you use a pharmacy that is not part of your plan’s network, you may have to pay more for your prescription.

Premium: The amount you pay for your Part D prescription drug coverage. Premiums are usually charged on a monthly basis. In 2011, the average premium across the country is about $32.00.

Prior Authorization: Before it will cover a specific drug, your Part D plan may require information from your doctor to make sure you are using the medication correctly and for a health condition covered by Medicare. If you do not have prior authorization when required, your Part D plan may not pay for the medication.

Quantity Limits: Your Part D plan may cover only a certain amount of one of your medications over a period of time. For example, you may be limited to a 30-day supply of your medication.

Step Therapy: If your doctor has prescribed a medication for your condition, your plan may require that you try one or more other medications first. This may happen if there are effective, safe, and lower-cost drugs that treat the same health condition. If you have tried other drugs or your doctor thinks they are not the best treatment option for you, you and your doctor can appeal to the Part D plan.

Total Drug Costs: The total amount paid for your covered medications during the year. The Total Drug Costs include payments made by you, others on your behalf, and your Part D plan.

True Out-of-Pocket (TrOOP) Costs: Your TrOOP is the amount that you (or others on your behalf) actually paid out-of-pocket for your medications. It includes your annual deductible, copayments, coinsurance, and any payments you made while in the donut hole. It does not include your monthly premium or any amount your Part D plan paid for your drugs.

Note: The definitions are based on information from Medicare & You 2011 and from several Part D plan guides provided by Harvard Pilgrim, Blue Cross Blue Shield, and AARP/UnitedHealthcare.

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