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How the Model Medicare Part D Plan Work
Most basic or model 2008 Medicare Part D plan is broken down into four main parts:
- Part 1 - The initial $275 deductible - Some plans do not have an initial deductible and provide "first dollar coverage" - (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 $2510 - 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 $4050 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 $275 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 $2510.
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 ($275 ) and $2510 which is: (2510 - 275 )*0.25 = $558.75.
When your costs total more than $2510, you will be responsible for 100% of the difference between $2510 and (as in our example) $2,600 or an additional cost of $90.
Your total ESTIMATED annual "Out of Pocket" prescription drug cost with a Medicare Part D plan should then be around: $275 + $558.75 + $90 = $923.75
(plus the monthly premiums for the Medicare Part D plan).
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:: Still not sure? Try our Online Cost Estimator
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Last updated on: 07/18/2008
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