Medicare Drug Plan: What's Covered, What's Not

For information on the basics of Medicare Part D, check out the first article in Gavin Magor's series here.

Medicare Part D's coverage can get confusing, but don't let it trip you up. You have too much to gain. The most important thing to understand is that the prescription drug benefit provides security and peace of mind, since your catastrophic drug costs are covered.

Even if you may not depend on medications now, it is crucial to view this new coverage as insurance protection against future prescription drug costs. The benefit is also appealing because the government pays for a good portion of the coverage for all beneficiaries.

There's an initial enrollment period that begins three months before the month someone meets the Medicare eligibility requirements, and ends three months after the month of eligibility. During this time, individuals may enroll in a Part D plan without penalty.

If you haven't signed up before your initial eligibility ends, you'll be faced with a 1% surcharge (based on the average national premium) that accrues each month that you delay signing up.

Levels of Coverag

There are basically four levels to the coverage:

Level 1 -- Deductible: You will need to spend $275 on drugs before coverage kicks in; however, you'll most likely get your prescriptions at a lower price than you pay now, since a Part D provider will probably have negotiated discounts with suppliers.

Level 2 -- Deductible: You will have to pay a partial amount of the next $2,235 in drug expenses you incur. In this level of the benefit, the government pays 75% of the costs, while you are responsible for 25%. The maximum you will have to pay is $558.75.

Level 3 -- Coverage Gap: You will have to pay the full amount of the next $3,216 in drug costs you incur. Keep in mind that you'll likely pay lower rates for your drugs than you otherwise would, thanks to discounted prices your plan has negotiated.

Level 4 -- Catastrophic Coverage: Once you have moved through levels 1 through 3, you will pay a maximum of 5% for any additional drug costs you need in that calendar year.