Most basic or model 2009 Medicare Part D plan is broken down into four main parts:
Part 1 - The initial $295 deductible - Some plans do not have an initial deductible and provide "first dollar coverage" - See our Medicare Part D Plan Overview by State (left in the Navigation) for a few examples.
Part 2 - Coverage - The plan provides the Medicare Part D Beneficiary with co-insurance or medication co-payment. Usually, coverage extends to a point where the total retail cost of the medication reaches $2700 - however, some plans lower this limit to $2,000 or even $1,850 (lower limits are used to lower monthly premiums for people with minimal medication needs.
Part 3- The Coverage Gap or Donut Hole - Here is where the Beneficiary pays 100% of their Medication costs - Some plans do provide partial or complete coverage for this gap in the Medicare Part D coverage.
Part 4 - Catastrophic Coverage - When a person has spent more than $4350 for prescription medications, they will be protected by Catastrophic Coverage - here the cost of medications is substantially reduced.
An example of the CMS model or standard plan in action
Your out of pocket prescription drug costs are calculated on a progressive basis (like your federal income tax).
You will pay the first $295 yourself (as the Medicare Part D Plan deductible). After your deductible, you will pay 25% co-insurance towards all your prescription drug costs up to a total of $2700.
For example, let us assume that your total yearly prescription drug expenses are $2,600.
Therefore, you will pay 25% of the difference between the deductible ($295 ) and $2700 which is: (2700 - 295 )*0.25 = $601.25.
When your costs total more than $2700, you will be responsible for 100% of the difference between $2700 and (as in our example) $2,600 or an additional cost of $-100.
Your total ESTIMATED annual "Out of Pocket" prescription drug cost with a Medicare Part D plan should then be around: $295 + $601.25 + $-100 = $796.25 (plus the monthly premiums for the Medicare Part D plan).
