Medicare costs continue to rise, especially costs associated with outpatient prescriptions. Medicare Part D is the part of the federal Medicare program that offers beneficiaries protection against high prescription drug costs. Private health insurance companies approved by Medicare administer Medicare Part D.
You can get prescription drug coverage in two ways:
- Through a stand-alone Medicare Prescription Drug Plan (PPD) that is a supplement to Medicare Part A and Medicare Part B
- Through a Medicare Advantage Plan (Medicare Part C) that combines Part A, Part B, and Medicare Part D coverage into one plan
You cannot have prescription drug benefits through both Original Medicare and Medicare Advantage. Suppose your Medicare Advantage Drug Plan (MAPD) includes drug coverage, and you join a stand-alone PPD plan. In that case, your Advantage plan will automatically be canceled, and you will be switched back to Original Medicare.
Who Is Eligible for Medicare Part D?
Seniors with Medicare Part A and/or Part B qualify for Medicare prescription drug coverage. In addition to having Medicare coverage, you must live in the service area of the Part D plan.
How Much Does Medicare Part D Cost?
Medicare beneficiaries who enroll in Medicare Part D will have some out-of-pocket expenses regardless of whether drug benefits are through a PPD or MAPD. These Part D costs include:
- Part D drug premium. The cost of Medicare prescription drug coverage varies by the insurance company, location, and the plan’s Part D benefits. In 2018, drug benefit plan premiums ranged from $41.30 to $54.70. The national average for Medicare Part D plans was $47.30.
- Yearly deductible. Deductibles can range from no deductible at all to $415, the highest deductible an insurance carrier is allowed to charge in 2019.
- Copayments. Specific amounts you pay for each prescription, and copays can range from $5 to $40.
- Coinsurance. Coinsurance is the percentage you’re required to pay for each prescription.
Medicare Part D plans organize the drugs they pay for into tiers. Your copayments and coinsurance amounts depend on the drug, what tier it falls under, and whether it’s generic or brand name drugs. Typically, the higher the Part D drug tier, the higher your copays and coinsurance. All the stand-alone prescription drug plans in your area might cover your medication, but they might be listed on different tiers and have various copays or coinsurance amounts.
Medicare beneficiaries with a modified adjusted gross income (MAGI) above a certain amount might have to pay an income-related premium along with their regular drug benefit premium. You pay this extra amount to Medicare, not your Part D plan.
The Social Security Administration will notify you if you’re required to pay this income-related premium. The premium amount can change each year. It is based on your MAGI and filing status from two years ago. For example, a 2019 income-related premium is based on your 2017 tax return.
Part D Prior Authorization
Sometimes stand-alone prescription drug plans require prior authorization before they’ll pay for a particular drug. Prior authorization usually applies to drugs with the potential for inappropriate or overuse, safety issues, or a lower-priced drug on the Medicare plan’s formulary. Suppose your health care provider doesn’t submit a prior authorization request, or the Medicare insurance company denies the request. In that case, you will be responsible for paying the full amount for the prescription.
Help Paying for Medicare Part D Drug Costs
Medicare beneficiaries on a limited income might qualify for help paying for prescription drug coverage through the federal Extra Help Program. Most Medicare beneficiaries who qualify for Extra Help, also called Part D low-income subsidy (LIS), don’t pay deductibles or premiums. They do pay a modest amount in copays for each prescription.
What Is the Medicare Part D Donut Hole?
All Medicare prescription drug plans place a temporary limit on how much they will pay for prescription drugs. This limit is called the coverage gap or “donut hole.”
The “donut hole” begins after you and your Part D drug plan have spent a specified amount on drugs during your initial coverage period. In 2020, that combined amount was $4,020. Once in the “donut hole,” you don’t pay copayments or coinsurance for drugs. Instead, you pay a specified percentage of the drug cost:
- 25% for most covered brand-name drugs (the drug manufacturer and federal government pay the other 75%)
- 37% for generic drugs (the drug manufacturer and federal government pay the additional 63%)
A beneficiary who qualifies for the Extra Help program won’t have a coverage gap. They will continue to pay zero or reduced coinsurance and copayments.
Neither Medicare Supplement plans nor Medicare Advantage prescription drug insurance plans cover drug costs in the “donut hole.”
Getting Out of the Part D “Donut Hole”
After you have paid $6,350 (in 2020) in out-of-pocket drug costs, you’re out of the coverage gap, regardless of which Part D plan you have. Only what you pay counts toward the $5,100; it doesn’t include what your Part D plan pays. The following out-of-pocket costs count toward getting out of the “donut hole”:
- Annual deductible, coinsurance, and copayments paid during your initial coverage period
- What you paid during the coverage gap
- Brand-name discounts negotiated between your Part D plan and the manufacturer
- Any amount paid by certain assistance programs
Out-of-pocket costs that don’t count toward getting out of the “donut hole”:
- Monthly premiums
- Cost of non-covered drugs
- Cost of covered drugs outside of your plan network
- The 63% generic discount
- Dispensing Fees
When you leave the “donut hole,” you enter the catastrophic coverage phase of Part D coverage. During this phase, you pay whichever is higher:
- 5% of each drug cost or
- $3.40 for generic drugs and $8.50 for brand-name drugs
Medicare will track your costs for you through the coverage gap and catastrophic coverage phases.
What Drugs Are Covered Under Medicare Part D?
Each Part D plan has a list of drugs it covers. This list, or formulary, includes generic and brand-name drugs. Each Medicare drug plan has to offer two drugs in each health care category, but it chooses which two it offers. Most plans offer four tiers:
- Generic: least expensive, includes all generic drugs and some brand name drugs
- Preferred: brand name drugs proven most effective for particular conditions
- Non-preferred: non-preferred brand names along with preferred specialty drugs
- Specialty: most expensive because they’re brand names, non-preferred, and specialty
What Is the Medicare Part D Enrollment Period?
Although Medicare Part D is optional, there are specific times when you can join or make changes to your Part D plan.
Initial Enrollment Period
Your initial enrollment period (IEP) is when you are first eligible for Medicare. The IEP is different depending on how you qualify for Medicare:
- You turn 65: Your IEP is the same as your Medicare enrollment period, a seven-month period that starts three months before your birthday month and ends three months after your birthday month.
- You’re under 65 and have a disability: Your seven-month IEP starts 22 months after you begin receiving Social Security or Railroad Retirement Board benefits. It ends 28 months after you start receiving benefits.
- You’re already eligible for Medicare due to a disability, and you turn 65: Your IEP is the seven-month time frame that starts three months before your birthday month and ends three months after your birthday month.
- You aren’t enrolled in Medicare Part A, but you did enroll in Medicare Part B during the General Enrollment Period (Jan. 1 – Mar. 31): Your IEP is from Apr. 1 to Jun. 30.
Open Enrollment Period
You have the chance to make changes to your Medicare Part D plan twice each year. The two open enrollment periods are:
- Oct. 15 – Dec. 7: During this open enrollment, you can join a Medicare Part D plan, change plans, switch between Medicare Advantage Plans, or drop your Part D coverage entirely.
- Jan. 1 – Mar. 31: During this open enrollment, you can join a Part D plan if you cancel your Medicare Advantage Plan and return to Original Medicare. This is also your Medigap Open Enrollment Period if you want a Medicare Supplement plan to help with hospital and medical expenses.
Special Enrollment Periods
Special enrollment periods (SEPs) offer additional opportunities to make changes to your Part D drug coverage. SEPs include:
- If you move to a new location.
- If you lose your current coverage due to becoming ineligible for Medicaid Services or Extra Help, your coverage through an employer or union ends, you lose creditable coverage, or your coverage changes and is no longer credible.
- If you have a chance to get other coverage.
- When there are contract changes between your Part D plan and Medicare.
There are other situations where special enrollment might apply. The SEPs are different based on the reason you’re changing coverage. To get assistance with your situation, feel free to call one of our Medicare Part D specialists.
How to Enroll in Medicare Part D?
Before applying for Medicare Part D coverage, you must have Medicare Part A and Part B coverage. Then, you can apply for Part D coverage directly with a Medicare insurance company or through a licensed insurance agent. Once you find the plan covering the drugs you take, you can compare rates between insurance companies.
Medicare Part D Late Enrollment Penalty
If you don’t sign up for Medicare Part D when you’re first eligible for Medicare, you could be subject to a late enrollment penalty. You might owe a late penalty if you go 63 or more consecutive days without having creditable prescription drug coverage. Creditable coverage is drug coverage that, at a minimum, meets the standards of Medicare drug coverage.
The late penalty is 1% of the national base premium multiplied by the number of months you were eligible but didn’t enroll and were without creditable coverage. The penalty is added to your Medicare Part D monthly premium when you elect to enroll.
If you qualify for the Extra Help program, you can enroll in a Medicare Part D plan anytime, and you will not be subject to a late penalty.