The Medicare coverage gap is the gap between the initially covered limit for prescription drugs and the minimum threshold for catastrophic coverage. This means that once you exceed your prescription drug coverage limit, you must pay the full cost of your drugs until your expenses reach the catastrophic coverage level. The limits are described in the Medicare Part D Prescription Drug Program.

The Medicare coverage gap can be a shocking experience for many people who are suddenly forced to pay full price for drugs when they thought they were covered. In addition, the price point is calculated not on the amount you personally paid for the drug, but on the full retail cost of covered prescription drugs, also known as “Total Drug Expenses.”

According to the CMS Model, the coverage gap occurs at around $2,830. However, it varies by medical plan, and in some cases it can start as low as $1,800. Also, the $2,830 does not include non-plan drugs or prescription drugs purchased outside of the United States.

Currently, the TrOOP (True Out-of-Pocket) for one person is around $4,550 before the catastrophic threshold is reached. This does not include your monthly premiums or any part of your prescription that may be covered by your provider. Annual limits are calculated annually, which means that the TrOOP level changes from year to year.

The coverage gap happens to people who have chosen to get prescription drug coverage under Medicare Part D. If you’re in Plan D and your yearly prescription drug costs are low, you may not go without coverage. Other ways to avoid the Medicare coverage gap is to enroll in supplemental health plans that reduce or completely eliminate the coverage gap, although this requires a higher monthly premium. People eligible for Medicaid and other coverage may not face the coverage gap.

Once the catastrophic threshold level is reached, the Medicare Part D beneficiary will pay minimum charges per month of approximately 5% of the cost of generic and brand name drugs.

Does this mean you have to keep track of your retail drug costs? No, because the Part D plan provider will track and collect their costs in view of the coverage gap. A note should be included on your monthly statement as you approach the $2,830 point.

To stay on top of your Plan D costs, keep track of your monthly drug expenses and all the paperwork related to your health coverage. Keep all prescription purchase receipts so you know how much of the cost of the medicine your insurance coverage pays for.

Steps are now being taken to deal with the Medicare coverage gap. In 2010, the Obama Administration announced, through the Patient Protection and Affordable Care Act of 2010, a reimbursement verification program of $250 per month for people who fall in the coverage gap and upon reaching three months in the ‘hole’. The law aims to completely eliminate the coverage gap by 2020.