Understanding Medicare Part D Plans
Medicare Part D insurance is health care coverage that helps beneficiaries (generally adults age 65 and older and people with long-term disabilities) pay for the costs of prescription drugs. If you have Medicare Part A (Hospital Insurance) or Part B (Medical Insurance), good news: You’re also eligible for Medicare Part D plans.
Unlike Parts A and B, which Medicare itself provides, Part D plans are offered by private insurance companies and must meet the level of prescription drug coverage Medicare requires. The full list of drugs a plan covers (called a formulary) may vary depending on the Medicare drug plan you choose.
How Does Part D Fit in with Original Medicare?
Consumers can enroll in Medicare Part D prescription drug coverage at the same time as Parts A and B (Original Medicare). According to federal law, anyone who has Part A or Part B is also eligible for a Part D prescription drug plan. There are two ways you can get Medicare prescription coverage:
- Sign up for a Part D Prescription Drug Plan (PDP): This is separate, stand-alone insurance enrollees can buy in addition to Original Medicare Part A and Part B or a Supplement (Medigap) insurance plan.
- Choose a Medicare Advantage Plan that includes Part D coverage: these plans combine Part A and Part B all in one comprehensive plan. Some plans even include Part D coverage, but that’s not always the case. A Medicare Advantage Plan is also known as a Part C plan.
How Much Does Medicare Part D Cost?
Medicare Part D helps pay for the cost of prescription drugs at the pharmacy, but you’ll need to pay a monthly premium for coverage. These premiums will either be in addition to any Part A and Part B premiums or will be included in your Medicare Advantage Plan (Part C) premium, depending on which of those options you choose.
In addition to a monthly premium, Medicare beneficiaries may also have some out-of-pocket costs, such as copays, coinsurance, and deductibles. That said, all Part D plans must offer at least the basic benefits Medicare requires. Plans can provide more benefits, such as lower deductibles or an expanded formulary, but there’s a good chance you’ll pay a higher premium for them.
Basic Benefits Required by Medicare in 2019:
- Deductible: $415.00
- Initial Coverage Limit: $3,820.00
- Out-of-Pocket Threshold: $5,100.00
Not sure what all that means? You can think of the above terms as stages in your annual coverage. The first stage begins as soon as your coverage starts and lasts until your prescription drug costs meet your deductible. In 2019, that’s $415 or less. In this stage, you’ll cover the cost of all prescription drugs yourself.
Once you meet your deductible, you’ll move into the initial coverage period. During this stage, you’ll pay no more than 25% of drug costs, while Part D pays the rest. For many drug plans, this means your coinsurance will be 25% or less. Plans that offer copayments instead of coinsurance are required to set copayment amounts so that on average, enrollees pay 25% or less of a medication’s cost.
How long will this coinsurance last? As of 2019, they’ll continue all the way until your costs reach the Out-of-Pocket Threshold of $5,100. That’s thanks to the Affordable Care Act (ACA), which has been slowly closing the coverage gap that used to cost beneficiaries thousands more after they reached their Initial Coverage Limit.
The Part D Coverage Gap
CMS recently announced that the coverage gap (known as the donut hole) would close in 2019. Part D beneficiaries will now get better coverage in between hitting their Initial Coverage Limit and their Out-of-Pocket Threshold.
If you’re new to Medicare, all you need to know is that your cost share will be just 25% of the full price of your prescriptions from the time you reach your deductible until you reach your Out-of-Pocket Threshold.
If you’re not new to Medicare and you’ve experienced the struggle of paying for prescription drugs while in the coverage gap, you’ll be happy to know the donut hole has been filled.
The way things used to be, once your drug costs reached a certain amount ($3,750 in 2018), you’d have to cover most expenses yourself. This period, which lasted until a beneficiary’s costs reached the Out-of-Pocket Threshold ($5,000 in 2018), put a huge strain on people.
But starting January 1, 2019, the donut hole no longer exists. The ACA allocated some government funding to help close the gap. It also required pharmaceutical companies to provide the remaining funds to help lower the cost of brand-name drugs after you meet the Initial Coverage Limit.
The result is that your drug costs will be no more than a 25% coinsurance from the time you meet your deductible, all the way until you hit the out-of-pocket threshold. And, since any contributions pharmaceutical companies contribute toward your brand name drugs also count toward your Out-of-Pocket Threshold, you may still reach Catastrophic coverage swiftly.
What happens after you reach your Out-of-Pocket Threshold? When your out-of-pocket costs (plus any costs a drug’s manufacturer has covered) reach $5,100, the Catastrophic Coverage stage begins. At this point, your drug coverage benefits return even stronger than before, and your prescription drug costs will be minimal. In fact, you’ll pay no more than 5% of a drug’s cost.
What Will my Part D Costs be?
Your prescription drug costs will depend on which Part D plan you choose and what drugs you take. The more you spend on prescriptions, the faster you’ll move through the coverage phases, as this chart shows:
|Monthly Cost with No Insurance||Deductible Met||Catastrophic Coverage Reached||Annual Out-of-Pocket Costs|
All values in this table are based on monthly costs for generic prescription medications and calculated using Medicare’s 2019 standard values for deductibles, copays, coinsurance, etc. These values are intended for general information only. Your prescription costs may vary.
Is Medicare Part D Mandatory?
Enrolling in a Medicare prescription drug plan is not mandatory. Before letting your initial enrollment period tick away, however, consider that there may be additional costs should you change your mind and decide to enroll later.
The sooner you enroll in Medicare Part D, the better.
There are two ways to avoid these additional costs:
- Enroll in a Medicare Advantage plan with Prescription drug coverage.
- Obtain prescription drug coverage from another source (such as your current or former employer or a private plan) that’s comparable to or better than Medicare coverage.
People who do not enroll in Medicare during their initial enrollment period and cannot show proof of comparable coverage obtained elsewhere may be subject to a Late Enrollment Penalty (LEP) down the line if they do decide to enroll at a later date. How much that LEP ends up costing you depends on how long you’ve gone without coverage.
Because the Part D LEP will be added to your Part D premiums for life and other plans may have their own LEPs, the costs can add up.
Part D Late Enrollment Penalty Example:
Let’s say you wait one year (12 months) after your initial enrollment period to get coverage. For every full month you’ve gone without coverage, your LEP will go up 1% of the National Base Beneficiary Premium, which is set at $33.19 for 2019. So 12 x $33.19 x .01 comes to $3.98 per month, costing you an additional $47.79 per year as long as you have Part D coverage.
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Drugs Covered by Part D Medicare Plans
Part D covers prescription drugs, but how do you know which drugs are covered? Each plan keeps a formulary, which is a complete list of every generic and brand-name prescription drug the plan covers.
By law, Medicare Part D plans must cover specific categories of medications; however, the particular drugs within those categories may vary by insurance company and may include generic drugs, brand-name drugs, or both. For this reason, check the plan’s formulary to make sure it covers any medications you take before you enroll.
Formularies can change during the year. If a change involves a drug that you are currently taking, the plan you’re enrolled in must send you a written notice at least 60 days before the date of the change. In some cases, at the time you request a refill, you may be provided written notice of the change and a 60-day supply of the drug covered under the same rules that applied before the change.
Generally, if your plan doesn’t cover a drug you’re already taking, it will give you a one-time, temporary supply of your current medication during your first 90 days of enrollment. This temporary supply allows you and your prescriber time to find another drug on the plan’s formulary that will work as well as what you’re taking now. Alternatively, you or your prescriber can contact the plan to ask for an exception.
Finally, there may be different rules about which medications a plan covers for people who move into or already live in a long-term facility (like a nursing home or long-term care hospital), so ask one of our licensed agents today.
Part D Eligibility and Enrollment
Two key factors determine whether you are eligible to sign up for Medicare Part D Plans. You’re eligible for enrollment if:
- You’re enrolled in Part A or Part B (or both).
- You currently live in the service area of at least one plan that provides prescription drug benefits.
If both are true, you can sign up for these plans during certain periods.
Initial Enrollment Period (IEP)
IEP is when you can first enroll for prescription drug benefits, and when it occurs will depend on the month you first become eligible for Medicare. For most people, that’s three months before the month of their 65th birthday. For others, it’s their 25th month of receiving Social Security or Railroad Retirement Board disability benefits. Your entire enrollment period will run for seven months: the three months before the month you become eligible, the month you’re eligible, and the three months after.
When you sign up for a plan, your coverage will begin as soon as your eligibility does. Or, if you apply in the months following your eligibility, coverage will kick in the next month.
Annual Election Period (AEP)
From October 15 to December 7 each year, you can review and adjust your current drug coverage. If you didn’t sign up during the Initial Enrollment Period, you could also join a Part D plan during the Annual Election Period, more commonly known as the Open Enrollment period.
Advantage Disenrollment Period
If you’re enrolled in a Part C Medicare Advantage plan, you’ll need to disenroll in that plan and switch to Original Medicare (Parts A and B) if you want to enroll in Part D. That’s where the Advantage Disenrollment Period comes in.
This period, from January 1 to February 14 each year, allows you to switch from an Advantage Plan to Original Medicare and add a stand-alone Part D Prescription Drug Plan to boot.
Special Enrollment Period (SEP)
SEPs allow you to make changes to your prescription drug coverage outside of the regular enrollment periods. You may be eligible for an SEP if:
- You moved to a new address outside your plan’s service area.
- You’re no longer eligible for Medicaid.
- You become eligible for both Medicare and Medicaid.
- You moved back to the United States after living in another country.
See a full list of reasons for Special Enrollment Periods.
What Else Do I Need to Know about Part D?
As we wrap up, there are just a couple more things to wrap your brain around:
- You can’t have drug coverage from both an Advantage Plan and a stand-alone Prescription Drug Plan. You’ll need to decide which combination of medical, hospital, and prescription drug coverage is right for you.
- Once you enroll, you’ll get an Annual Notice of Change (ANOC) each September. The ANOC tells you about any changes to your plan, including adjustments to costs, coverage, or service areas.
- If you have coverage for prescription drugs from a current or former employer or union, your coverage must be as good or better than basic Part D benefits for you to keep the employer plan. You should receive an annual notice from the plan sponsor notifying you whether your coverage meets the minimum standards.
Medicare Plan D is prescription drug coverage that consumers can purchase as a stand-alone plan or as part of Medicare Advantage.
If you have Medicare Plan A or B, you’re eligible for Medicare Plan D prescription drug coverage too. Each insurance company chooses which individual drugs to cover, but all approved plans have the same minimum coverage requirements.
Unless you’ll be able to obtain prescription coverage that’s equal or better elsewhere, like from your employer, it’s best to enroll in Part D during your Initial Enrollment Period (IEP) to get the lowest rates possible.
Not sure which Medicare plan is right for you or how to get started? That’s what we’re here for. Give one of our licensed agents a call today at 855-802-1206.