Medicare open enrollment ends Saturday! Learn more.
by Patricia Barry, AARP Bulletin, Updated February 2016
En español l Medicare Part D is full of jargon that you may come across in dealing with your drug plan. Here are the meanings of words and phrases commonly used in Part D, arranged alphabetically. Words in italics within definitions indicate that they’re explained elsewhere in the glossary.
Annual open enrollment period: Seven weeks from Oct. 15 through Dec. 7 each year when you can switch to another Part D plan for the following year, or join the program for the first time in certain circumstances. (Also called annual election period.)
Annual Notice of Change: The letter your Part D plan must send you in September every year to explain specifically how its costs and benefits will change for the following year.
Appeals process: Five successive levels of appeal that allow Part D enrollees to challenge plan decisions they don’t agree with. An enrollee can argue his or her case through one or more of these levels, beginning after a plan has denied the enrollee’s exception request for coverage or payment.
Brand-name drugs: Medications protected by patents that grant their makers exclusive marketing rights for several years, during which time prices remain high. When patents expire, other manufacturers are allowed to sell generic copies at lower prices.
Catastrophic coverage: The level of coverage when Medicare covers almost all your costs after you’ve passed through the coverage gap and spent a certain amount out of pocket in a year.
Coinsurance: A percentage (for example, 25 percent) of the cost of a drug that you pay as your share of each prescription.
Copayment: A set amount (for example, $25) that you pay as your share of each prescription.
Coverage: The amount your plan pays toward your drug costs.
Coverage gap (doughnut hole): The gap between initial and catastrophic coverage, a period in which you used to be required to pay 100 percent of your prescription costs if you have no additional drug coverage. However, from 2011 onward a provision of the 2010 Affordable Care Act began to narrow the coverage gap. In 2016 you receive discounts of 55 percent on your brand-name drugs in the gap and a 42 percent discount for generic drugs, so that you pay 45 percent for brands and 58 percent for generics. (In 2017, you pay 40 percent and 51 percent respectively.) Over time these discounts will grow larger until, by 2020 you’ll pay no more than 25 percent of the cost of any drugs in the gap. You fall into the gap if and when your total drug costs rise above a certain amount in the year.
Coverage restrictions: Your plan requires you to ask its permission before it will cover certain drugs. Restrictions include prior authorization, quantity limits, and step therapy.
Creditable coverage: Drug coverage offered by others that is considered at least as good as standard Medicare coverage. If you have creditable drug coverage (for example, from an employer or union plan, or veterans or military retiree benefits) you do not need to join Part D, but it’s wise to check that your coverage is creditable.
Deductible: The amount you pay each year before coverage kicks in.
Doughnut hole: See Coverage gap.
Exception (or coverage determination) request: A request you can make to your plan, asking it to cover a needed drug that is not on the plan’s formulary or is subject to coverage restrictions. To be successful in winning an exception, you need your doctor’s support to explain why the prescribed drug is necessary for your medical condition. If your request is denied, you can pursue it through the appeals process. The exceptions and appeals process can also be used for payment issues—for example, if your plan doesn’t refund money due to you on time.
Extra Help: A special program within Part D that provides low costs and continuous coverage to people with limited incomes who qualify.
Formulary (preferred drug list): The drugs that a Part D plan covers.
Full price of drugs: The price that a Part D plan has negotiated with the manufacturers. This discounted price is usually less than you’d pay retail outside your plan. It’s the amount you pay when you’re in the deductible, if your plan charges one.
Generics: Drugs that have the same medical effect as brand-name drugs but usually cost less.
Higher-income Part D premium: A surcharge that you pay on top of your Part D plan’s regular premium if your modified adjusted gross income (MAGI) on your income tax returns is above $85,000 (for a single person) or $170,000 (for a married couple filing joint returns)
Initial coverage: The amount your plan pays after the deductible (if any) has been met and prior to the coverage gap.
1. How Part D Coverage Works
2. Extra Help Paying for Drugs
3. The Doughnut Hole
4. Do You Need Part D?
5. Choosing a Part D Drug Plan
6. Enrolling in Medicare Part D
7. Glossary of Terms
8. Where to Go for Help
Initial enrollment period: The seven-month time frame you get to enroll in Medicare around the time you turn 65 or, if you’re younger with disabilities, around the time you receive your 25th Social Security disability payment. If you have no other creditable drug coverage, you should also use this period to sign up for a Part D plan.
Late enrollment penalty: The extra amount you pay in premiums if you do not sign up for Medicare drug coverage when you first become eligible, unless you already have creditable coverage from elsewhere.
Mail-order service: An option offered by most Part D plans, allowing you to fill your prescriptions in 90-day supplies through the mail.
Medicaid: The state-federal program that provides low-cost health care for people with limited incomes who qualify. (The program has different names in some states — for example, MediCal in California, MassHealth in Massachusetts, TennCare in Tennessee.) Anyone eligible for Medicare as well as Medicaid receives prescription drugs from a Part D drug plan and automatically qualifies for Extra Help.
Medicare Advantage plans: Private health plans that offer an alternative to traditional Medicare. They can be health maintenance organizations (HMOs), preferred provider organizations (PPOs), private fee-for-service (PFFS) plans, special needs plans (SNPs), or Medicare medical savings accounts (MSAs).
Medicare drug plans: Medicare-approved private insurance plans that offer prescription drug coverage in the Part D program. They can be stand-alone plans that provide only drug coverage or Medicare Advantage plans that provide medical care and drug coverage in a single package.
Medicare Part D: The official name of the drug coverage program.
Medicare Prescription Drug Plan Finder: An online tool provided on Medicare’s website that allows you to enter your Zip Code and details of your drugs in order to compare available Part D drug plans head to head to find your best deal.
Medicare Savings Programs: State programs, cofunded by the federal government, that pay some or all of Medicare’s out-of-pocket costs for people with limited incomes who qualify. If your Medicare Part B premiums are paid for under one of these programs, you qualify automatically for Part D’s Extra Help program.
Medigap: Private supplementary insurance that covers many out-of-pocket costs in Parts A and B of Medicare, but not in Part D.
Out-of-pocket limit: A dollar amount, set each year by law, that releases you from the coverage gap and qualifies you for low-cost catastrophic coverage, if your drug costs reach that level in any one year. Any payments you’ve made for your drugs out of pocket since the beginning of the year count toward the limit, and are known as true out-of-pocket costs.
Out-of-pocket spending: How much you pay for drugs from your own money.
Network pharmacies: Pharmacies where you can use your plan membership card to buy your medications. Some of these are preferred pharmacies where your drugs may cost less. Buying your meds from pharmacies outside your plan’s network costs more, maybe even full price, except in special circumstances.
Preferred drugs: The drugs your plan prefers you to use (among several used to treat the same medical condition) because it has negotiated a good discount from the manufacturers. Preferred drugs usually have lower copays in a plan’s tier of charges than non-preferred drugs.
Preferred pharmacies: The retail pharmacies your plan prefers you to use because it has negotiated certain terms, such as lower dispensing fees, with them. Buying your drugs from the preferred pharmacies in your plan’s network costs you somewhat less than the others.
Premium: The amount you pay to a drug plan each month for coverage. (See also: Higher-income Part D premium.)
Prior authorization: A coverage restriction on a drug, meaning you must receive the plan’s permission before it will cover that drug. You can file an exceptions request together with a statement from your doctor explaining why the prescribed drug is necessary for your medical condition.
Quantity limits: A coverage restriction on a drug, meaning that the plan will not cover a certain drug at the dosage or quantities prescribed unless you receive the plan’s permission. You can file an exceptions request, together with a statement from your doctor explaining why the prescribed dosage or quantity is necessary for your medical condition.
Service area: The geographical region served by your Part D plan. The service area of any stand-alone drug plan is a whole state or, sometimes, a group of states. The service area of a Medicare Advantage plan can be a ZIP code, a county, a group of counties, a state or a group of states. Whichever type you choose, you must live in the service area of the plan you want to join. In many cases the plan’s service area determines your premium, copays, and benefits.
Special enrollment period: A time frame for joining a Part D plan or switching to another outside of your initial enrollment period or the annual open enrollment period — for example, if you move out of your current plan’s service area; move into or out of a nursing home; lose creditable drug coverage from an employer or union plan; return to the United States after living abroad; or are released from prison.
Stand-alone drug plans: Part D plans that provide only drug coverage and are typically used together with medical benefits from traditional Medicare.
Standard Medicare drug coverage: The minimum required by law. Plans can offer better benefits and lower costs.
State pharmacy assistance programs: Programs offered in some states to help people afford prescription drugs. Some “wrap around” Part D coverage provides extra benefits and lower costs for state residents who qualify according to income.
Step therapy: A coverage restriction meaning that the plan requires you to try a less expensive drug before it will cover the one prescribed. You can file an exceptions request together with a statement from your doctor explaining why the prescribed drug is necessary for your medical condition and that you have already tried alternative drugs that have not proven as effective.
Supplementary Security Income (SSI): A federal program that provides an income for people who are 65 and older and blind or disabled. If you receive SSI payments, you automatically qualify for Part D’s Extra Help program.
Tier of charges: Different levels of copays, ranging from least expensive (usually generic drugs), through medium cost (usually “preferred” brand-name drugs) and higher cost (“non-preferred” brand names) to highest cost (rare and very expensive drugs). Charges for each tier vary among plans. Your copay or coinsurance depends on which tier your drug is placed in by your plan.
Total drug costs: What you pay plus what your plan pays for drugs.
Traditional Medicare: The original fee-for-service Medicare program in which you receive your medical benefits directly from Medicare and not through a Medicare Advantage health plan.
True out-of-pocket costs (TrOOP): The payments that count toward the out-of-pocket limit that gets you out of the coverage gap and triggers catastrophic coverage, if your drug costs run that high in a year. These payments include your deductible, copays in the initial coverage period and anything you’ve paid for your drugs in the gap — but not your premiums — since the beginning of the year. It also includes discounts on brand-name drugs that are provided by the manufacturers in the coverage gap.
Patricia Barry writes the AARP Ask Ms. Medicare column and is the author of Medicare for Dummies, 2nd edition (Wiley/AARP, September 2015).
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