Before your Part D drug plan pays anything, you first must pay the deductible. Stage one is paying Part D deductible, which increases $35 from $445 in 2021 to $480 in 2022. Once you pay this initial Part D deductible, you enter stage two.
Stage two is Initial Coverage. In this stage, Medicare helps pay for your prescription drugs. Your copays and co-insurance vary and are a percentage of an approved amount. However, your out-of-pocket costs will not exceed 25% of the cost of brand-name and generic drugs.
For most plans, when you spend $4,430 in total drug costs in 2022, you enter the donut hole (Stage 3: Part D coverage gap).
Stage three is Donut Hole, also called Coverage Gap. In stage three, you pay 25% coinsurance for generic and brand-name (non-discounted cost) prescription drugs. The total amount you spend inside the donut hole increases $500 from $6,550 in 2021 to $7,050 in 2022. Once you pay $7,050 in out-of-pocket drug costs, you enter stage four.
Stage four is Catastrophic Coverage. While inside stage four, you pay the greater of 5% prescription drug cost or $9.20 brand name / $3.70 generic. For example, if your brand name drug costs $100, you would pay $9.20. On the other hand, if your brand name drug costs $300, you would pay 5% or $15. However, if a generic drug only costs $50, you would pay $3.70.
Medicare donut hole is a coverage gap in Medicare Part D that can affect your out-of-pocket costs in 2022. You may have heard the donut hole closed on January 1, 2020. Many people were excited because they believe their drug coverage will be free. However, you still have 25% coinsurance inside the Donut Hole.
You can enroll in a Medicare Part D Plan when you initially enroll in Medicare. Learn how to enroll in Medicare. You may be eligible to enroll in Medicare 3 months before you turn age 65. This initial Open Enrollment period includes the month of your 65th birthday and three months after the month you turned 65.
We recommend enrolling in a Medicare Part D Plan when you are first eligible to avoid late enrollment penalties. However, if you have credible drug coverage, you can postpone enrolling in Part D and avoid late enrollment penalties. For example, employer drug coverage may qualify as credible drug coverage.
Part D late enrollment penalties accumulate at 1% per month. For example, 12 months equals a 12% late penalty. Furthermore, you will owe the late penalty every month you are in a Medicare Part D plan. It’s not a one-time penalty. You pay the late penalty every month you have a Part D Plan.
Medicare.gov calculates your penalty as follows: Multiply 1% of the “national base beneficiary premium” ($33.67 in 2022) times the number of full, uncovered months you didn’t have Part D or credible coverage.
Therefore, we recommend you find a Medicare Part D Plan when you are first eligible. To avoid accumulating a late enrollment penalty, you can sign up for an inexpensive plan.
Mr. Anderson had been healthy most of his entire life, and at the time of his Medicare enrollment period, was not taking any prescriptions. The insurance agent advised him to enroll in a Medicare Part D Plan to avoid late penalties. However, Mr. Anderson decided to gamble on his good health and decided not to enroll in a Medicare Part D plan.
Mr. Anderson enrolled in Original Medicare for two years without any health issues. Then at age 67, he had a heart attack. His doctor prescribed a new heart drug, Corlanor, to treat and reduce new heart failures. The cost of this life-saving heart medication is $375 per month.
Because Mr. Anderson’s heart attack occurred on April 1, he could not enroll in a Part D Drug Plan until October 15. Furthermore, the new drug plan would not be effective until next year, on January 1. Thus, he would have to pay $375 for eight months for a total of $3,000 out-of-pocket drug costs.