06:54 PM EST on Saturday, November 26, 2005

By Neil Downing / The Providence Journal

If you sign up for one of the new prescription drug plans offered through Medicare, will it cover prescription drugs you buy from Canada? No, and that's the point a man from Westerly made to MoneyLine:

Q: When discussing the Medicare prescription plan [Part D], please tell people that they should consider their present costs, including Canadian, because you can't use Canadian purchases with this new plan — you have to buy American. So to consider what it's really going to cost you — including the plan — they should look at that cost. It's a big thing to exclude foreign purchases from the plan.

— P.G., Westerly

A: You're right, and it's a point to keep in mind.

It was only yesterday, it seems, that we read about retirees chartering buses or using other means to buy lower-cost prescription drugs from Canada.

Perhaps those efforts will continue — but such purchases won't be covered under the new Medicare prescription drug plans (collectively known as Medicare Part D), said Dr. Charlotte S. Yeh, regional administrator of the Centers for Medicare & Medicaid Services, part of the U.S. Department of Health & Human Services.

Furthermore, any money you spend on prescription drugs — from Canada or from any other foreign country — won't be counted as a drug expense for purposes of the new Medicare Part D plans, Yeh said in an interview at the agency's regional headquarters in Boston.

Under many of the new plans, you generally must spend at least some of your own money on prescription drugs.

Once you've spent a certain amount, the plan's coverage takes over (or resumes, depending on how the plan is structured).

But prescription drugs you buy from Canada — or from other foreign countries — won't count toward such thresholds, Yeh said.

In other words, when you calculate any amount you spend, out-of-pocket, on prescription drugs for purposes of your plan's coverage, "You exclude foreign purchases," said Deane Beebe, communications director of the Medicare Rights Center, an independent, nonprofit consumer group.

That's not all: You must also exclude any prescription drug you buy — even in the United States — that's not in your plan's formulary, Beebe said in a telephone interview from her group's headquarters in New York. A formulary is a list of certain kinds of drugs that a Medicare drug plan will cover.

Broadly speaking, you may need to spend $3,600 out of your own pocket under the new Medicare drug plans before you get to what's known as your plan's catastrophic coverage, Beebe said.

Premiums you pay don't count toward that threshold; drugs you buy from other countries, and drugs you buy outside your plan's network of pharmacies, don't count, either, she said.

So while the new Medicare drug plans have lots of potential benefits, it's helpful to keep in mind their restrictions, too.

TODAY'S TIP: Keep in mind that you generally may claim a federal income-tax deduction for money you spend on prescription drugs that aren't covered by insurance.

You also may deduct premiums you may pay for Medicare Part A coverage, Medicare Part B coverage and Medicare Part D coverage.

However, you may deduct these and other medical-related expenses only if you "itemize" — in other words, only if you make a separate list of your deductions on Schedule A of your U.S. Form 1040.

So you can't deduct medical expenses if you claim what's known as the standard deduction — a lump-sum amount that varies depending on your filing status: whether you're single or married and filing a joint return, for instance.

About two-thirds of all taxpayers claim the standard deduction. But if you have high medical expenses that aren't covered by insurance, keep track of those expenses — you may be eligible to itemize and claim the medical-expense deduction.

For more information, including restrictions involving the medical-expense deduction, see Internal Revenue Service Publication 502, "Medical and Dental Expenses."

For your free copy, visit your local IRS office, call the agency toll-free at 1-800-829-3676, or use the IRS's newly redesigned Web site: www.irs.gov.

MoneyLine correspondent Neil Downing is a staff writer for The Providence Journal in Rhode Island and author of "The New IRAs and How to Make Them Work for You." Do you have questions about your money matters? Call us at 1-401-277-7484 and leave a message, or e-mail moneyline@projo.com.

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