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Medicare Part D: How The Finances Work


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Like just about all insurance plans, Medicare Part D only pays part of the cost of your prescription drugs. You pay the rest.

The basic structure of Medicare Part D payments breaks into four general parts, each of which are calculated each year:

  • Part 1. A deductible --  you pay 100% of the amount of the deductible.
  • Part 2. Basic coverage in which Medicare pays a large portion of the cost and you pay the differing amounts depending on the particular drug.
  • Part 3. A coverage gap (the so-called "Doughnut" hole,) during which you pay 100% of the cost of your drugs. Thanks to The Affordable Care Act ("Obamacare"), the percentage you pay decreases each year until it is eventually eliminated entirely.
  • Part 4. "Catastrophic coverage": After you have paid a certain amount of money out-of-pocket, Medicare takes over payment of the cost of your drugs except for a very small co-pay until December 31 of the year.  

When you purchase drugs through pharmacies in the Plan's network, the pharmacies will report your drug expenses to the Plan. If you purchase covered drugs elsewhere, send copies of the receipts to the Plan. (Keep the originals in your file in case a question comes up later.)

If you need help paying the costs of Part D drugs, there is a program known as "Extra Help."

For information about maximizing use of Medicare Part D, see: How To Maximize Use Of Medicare Part D.

NOTE: There are some drugs which are covered under Medicare Part B, so you do not have to pay for them under Part D. Ask your doctor or other health care provider.

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