Making Sense of Medicare Part D - Out-of-Pocket Expenses

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Title: Making Sense of Medicare Part D - Out-of-Pocket Expenses

Word Count: 1005

Author: Cockerill

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Making Sense of Medicare Part D - Out-of-Pocket Expenses

Copyright 2005 Cockerill

A complete understanding of Medicare Part D Out-of-pocket

expenses is critical for all Medicare-eligible individuals

in order for them to maximize their savings and get the

most out of the program.

What are the Out-of-Pocket expenses associated with

Medicare Part D? On the Medicare.gov website “Out of Pocket

costs” are defined as “health care costs that you must pay

on your own because they are not covered by Medicare or

other insurance.”

The Out-of-Pocket (OOP) expenses associated with Medicare

Part D are basically any costs for an enrollee’s

medications that Medicare will not cover and that they must

pay for on their own. These OOP expenses include the

annual deductible, which ranges from $0 - $250 depending on

the individuals chosen plan, and any other portion of their

medication cost that they are required to pay such as the

drug cost co-payments. It is important to note that an

enrollee’s monthly premium is not counted as an

Out-of-pocket expense. These premium payments are an

additional expense on top of the out-of-pocket expenses.

The majority of Medicare drug plans have a $250 annual

deductible and a 25% co-payment for all enrollee’s drug

costs until they have reached $2250 in drug expenditures.

Under this scenario, at the $2250 expenditure point,

enrollee’s will have $750 in Out-of-Pocket expenditures.

How do we come up with the figure of $750? This is

calculated as such:

The $250 annual deductible + $500 (25% co-payment x $2000

of drug expenditures) = $750

Individuals who have close to or exactly $2250 in annual

drug expenditures in 2006 will be the biggest winners of

the Medicare Prescription Drug plan. Based on the

individual paying only $750 in OOP expenses and assuming

that the individual payed the national average monthly

premium of $32.20, these individuals save approximately 49%

on their drug purchases. However, not surprisingly, the

majority of seniors do not fall in this category and the

savings drop off sharply when you spend more than or less

than the $2250.

For the millions of American seniors who will spend more

than $2250 on their drugs in 2006, this is where the

Out-of-Pocket expenses start to add up. Beyond the $2250

expenditure amount you are responsible for paying for 100%

of your drug cost until you have spent $3600 out-of-pocket

(called the Out of Pocket Threshold). This means that

between the annual drug expenditure range of $2250 and

$5100 you are 100% responsible for paying for the cost of

your medications.

How do we come up with the drug expenditure range of $2250

and $5100? Here is the explanation:

When the Medicare Modernization Act was passed in 2003 it

was decided at that time that once people had spent $2250

on drug expenditures they would then be 100% responsible

for paying for their drugs until they his a threshold of

$3600 in drug expenditures.

So between from $0 to $2250 there are $750 in out-of-pocket

expenses as we calculated earlier in this article.

$3600 OOP Threshold - $750 in OOP expenses at $2250 = $2850

remaining to reach the OOP Threshold.

Since after $2250 in expenditures enrollees are 100%

responsible for their drug costs we can simply add the

$2850 remaining to reach the OOP Threshold to the $2250 in

drug expenditures to get:

$2250 + $2850 = $5100

That is how we get the drug expenditure range of $2250 to

$5100 in which enrollees are 100% responsible for their

drug expenditures.

This expenditure range is often called the “doughnut hole”.

It is very important that Medicare eligible individuals

are aware of the doughnut hole because for the first few

months of 2006 they may be budgeting based on only having

to pay for 25% of their drug purchases and then all of a

sudden when they reach $2250 in drug expenditures they are

hit with responsibility of paying for 100% of the drug

cost. That is a huge and sudden change in monthly

expenditures.

It is also important that Medicare Part D enrollees are

aware that not all purchases are necessarily counted

towards their Out-of-Pocket expenditures. The following

are examples of purchases that will not be counted towards

OOP expenses:

1. If a drug that an enrollee requires is not on the

formulary of covered drugs for their chosen drug plan (or

if their plan removes that drug from its formulary of

covered drugs) that drug purchase will not be counted

towards their out of pocket expenses and you are 100%

responsible to pay for it. Purchasing these non-formulary

drugs, that the enrollee must pay full price for, from

Canada is an excellent alternative to paying high prices at

the local pharmacy. Individuals can save an average of 42%

by purchasing these medications in Canada.

2. If an enrollee travels and buys their prescription drug

at a pharmacy that is not included in their drug plan’s

network of pharmacies they are 100% responsible for the

cost of the medication and it will not be counted towards

their OOP expenses.

3. If an enrollee currently has an insurance plan and they

utilize their insurance coverage to pay for their drug

purchase, the purchase will not be counted towards their

OOP expenses.

4. If an enrollee purchases their medications from another

country that has low-cost, high-quality medications, such

as Canada, these purchases, unfortunately, will not be

counted towards their OOP expenses. However, these

individuals may want to explore this option when they reach

the doughnut hole to help them save even more money. In

fact, if an individual spends more than $2250 a year on

medicines but less than $7050 a year, buying their

medicines from Canada once they hit the doughnut hole is an

excellent option for them.

Medicare eligible individuals’ knowledge of Out-of-Pocket

expenses and what these expenses entail is crucial for them

to save as much as they possibly can with the Medicare

Prescription Drug plan.

About the Author:

Cockerill is a licensed pharmacist and the

co-founder and pharmacy manager of Universal Drugstore.

Mr. Cockerill graduated from the Faculty of Pharmacy at the

University of Manitoba with Honors in 1998. Mr. Cockerill

is the recipient of the 2005 Manager of the Year award from

the Manitoba Customer Contact Association.

http://www.universaldrugstore.com