Understanding Medicare terminology can help you select the right prescription plan for yourself. Some of the terms people find confusing are deductibles, coinsurance, initial coverage limit and max Medicare out-of-pocket costs. In order to make an informed decision about your plan, it is first necessary to understand what you are choosing.
Deductible and Coinsurance
Your monthly premium and deductible are the amount of money you have to pay out-of-pocket for approved costs before your insurance begins pay for medical coverage. The amount your insurance pays will depend on your coinsurance percentage and meeting your deductible. For example:
If your coinsurance is 20 percent, you are responsible for paying 20 percent of the cost of your care while the insurance company would cover the remaining 80 percent. For prescription coverage, this arrangement continues until you reach your initial coverage limit (described below).
Initial Coverage Limit/Max Out-of-Pocket
The initial coverage limit is based upon your total drug expenditures not the coinsurance amount. Once the initial coverage limit is reached, you enter the “donut hole” or coverage gap. In the coverage gap you are responsible for the majority of the total cost of your medication until you reach the maximum out-of-pocket limit. Think of the maximum out-of-pocket as your deductible + coinsurance + copayments up to a total dollar amount (i.e. the limit). The only costs that don’t count toward your out-of-pocket limit are premiums, which you must keep paying to continue your coverage. If you hit your max out-of-pocket before the year ends, catastrophic coverage will go into effect until the end of the year. Catastrophic coverage ensures that you only pay a small percentage for prescriptions for the duration of the year.
Once you understand the terminology for Medicare out-of-pocket costs, what’s next? How can this knowledge help you select the right Medicare plan?
Plans with low deductibles usually have higher premiums. If you anticipate high medical or prescription costs, these plans are ideal. If your medical needs are minor, selecting a higher deductible could lower your total expenses.
Talking to a licensed insurance agent will help you choose the best plan for your budget and needs. Our service is free to you and there’s no obligation. Call (800) 488-7621 to learn more or find a licensed agent at today.