Enacted in 2003 as part of the Medicare Modernization Act, Medicare Part D is a federally subsidized program offered through private health insurance companies to assist seniors with the cost of prescription drugs
Who is Eligible for Medicare Part D Prescription Drug Plans?
Anyone on Medicare is eligible for Medicare Part D coverage as long as they are also signed up for Medicare Part A and/or Medicare Part B.
Unless you have creditable coverage through an employer, it is important to sign up for a Medicare Part D Drug Plan when first eligible as there is a penalty for not doing so. The penalty is 1% per month of the national base premium which is added to the premium for the plan chosen.
In 2020, the Centers for Medicare and Medicaid Services (CMS) has set the national base premium cost of a drug plan at $32.74. If a you had waited 5 years from the time you were first eligible to enroll in a Medicare Part D Drug Plan, you would have a 5-year, or 60-month, penalty added to the monthly cost of your premium for the rest of your life.
For example, if your plan’s premium is $25.00, the math would look like this:
(1% times the base premium cost of $32.74) times (60 months) plus plan’s premium of $25.00 = $46.38 or (0.01 X 32.74) X 60 + $25.00 = $44.64. The cost of the penalty could fluctuate each year based on the average base premium.
Types of Medicare Part D Prescription Drug Plans Available
There are two types of plans through which Medicare Part D Prescription Drug Plan benefits can be received:
- A stand-alone Prescription Drug Plan (PDP) which can be paired with a Medicare Supplement (Medigap) Policy
- As part of a Part C Advantage plan that covers all Part A and Part B services as well as prescription drugs. This is called a Medicare Advantage Prescription Drug Plan. (MA-PD)
Enrollment in a Medicare Part D Prescription Drug Plan
There are a number of enrollment opportunities specific to a your circumstances.
- During your Initial Enrollment Period (IEP)
- During the 7-month period that starts 3 months before your 25th month of receiving Social Security or RRB Disability benefits and ends 3 months after the 25th month of receiving benefits if you are disabled
- During the period from April 1 through June 30 if you enrolled during the General Enrollment Period (GEP) and are signing up for Medicare Part B for the first time
- During the Annual Enrollment Period (AEP) from October 15 to December 7
- During the Open Enrollment Period (OEP) which runs from January 1 through March 31
- At any time you qualify for Extra Help
In addition to these standard enrollment periods, a Special Enrollment Period (SEP) would become available should any of the following events occur:
- A move out of your plan’s service area
- A loss of other creditable prescription drug coverage
- A move to an institution such as a nursing home
- Eligibility for Medicaid
- Eligibility for Extra Help
A word of caution: you may not be enrolled in both a Medicare Part C Advantage Plan that includes prescription drug coverage and a Medicare Part D Prescription Drug Plan simultaneously. If your Medicare Advantage Plan includes prescription drug coverage and you enroll in a Medicare Part D Prescription Drug Plan, you will automatically be disenrolled from your Medicare Advantage Plan and returned to Original Medicare.
What Are My Costs Under a Medicare Part D Prescription Drug Plan?
The cost of a Medicare Part D Prescription Drug Plan is governed by a number of factors.
- The monthly premium for the plan chosen
- The annual deductible as well a any copayments or coinsurance
- The drugs you are taking in relation to the formulary of the plan
- The retail price your plan has negotiated with the manufacturer
- The type of pharmacy used i.e. Standard or Preferred
- Your eligibility to receive Extra Help
Stand-alone Medicare Part D Prescription Drug Plans outside of Medicare Advantage are offered by private health insurers and vary in the premiums, deductibles, copayments, and coinsurance charged. In addition, each plan has its own formulary of drugs which are sorted on a tier system. There are five tiers and each tier determines the cost of the drug.
- Tier 1: Preferred Generic Drug
- Tier 2: Generic Drug
- Tier 3 Preferred Brand Name Drug
- Tier 4 Brand Name Drug
- Tier 5: Specialty Drug
Before enrolling in a plan, it is necessary to make certain that your drugs are all on the plan’s formulary and a comparison between plans is necessary to find the plan that offers the lowest overall cost.
It is a mistake to compare plans based only on the premium. This comparison does not account for the varied costs assigned by the tier levels or the variation among plans regarding deductibles, copayments, coinsurance, and negotiated drug pricing.
With so many moving parts in this comparison, it’s impossible to adequately research all the plans on the market to be sure you’ve found the plan that will give you the overall net lowest annual cost. Fortunately, we have an app that does all those calculations for us and delivers a list of plans ranked from the least to the most expensive.
Save yourself the headache and frustration and leave the research to one of our qualified agents. This process must be done on an annual basis as the plans run on a one-year contract with the Federal government. We’ll keep on top of your list of medications and will annually compare plans to be sure you’re always in the lowest-cost plan.
Cost differences between plans can be significant. In 2019 Annie, one of our clients, was on the plan that gave her the best pricing for her long list of diabetic and COPD medications. When we checked her drugs against the plan offerings for 2020, however, we found that by changing her to a competing plan, we were able to save her $2,000 over what she would have paid had she remained in her current plan.
Many people have the “Set It and Forget It” mentality when it comes to their Medicare Part D Prescription Drug Plan and it can cost them dearly. Call us at (888) 860-1002 for a FREE cost comparison to be sure you’re always in the plan that will give you the best pricing for all your medications.
The Coverage Phases of a Medicare Part D Prescription Drug Plan
There are 4 phases in a Medicare Part Prescription D Drug Plan
- Deductible Phase – In 2020, the maximum deductible allowed by the government is $435. Not all plans have a deductible; some compensate for not having a deductible by charging more for the drugs in their plan. Other plans may charge a deductible but may not apply it to all tiers. Frequently we see the plans offering tiers 1 and 2 with immediate coverage and applying the deductible only to tiers 3, 4, and 5. During the deductible phase, you will pay the full retail cost of the drug up to the level of the deductible. At that point, the next phase begins.
- Initial Coverage Phase – In this phase, your plan will begin to pay its share and you may pay either a copayment or a coinsurance amount. In 2020, the Initial Coverage Phase continues until the amount you and the plan have paid totals $4020.
- Coverage Gap (Donut Hole) In 2020, the coverage gap lasts until your Total Out of Pocket Costs (TrOOP) total $6350. But this isn’t as bad as it sounds. Inside the coverage gap you will pay 25% of the cost of your medications, both generic and brand name, and the pharmaceutical manufacturer will discount the cost by 70%. The 25% you pay and the 70% manufacturer discount on brand name drugs is credited to your Total Out of Pocket Cost (TrOOP) calculation that will move you through the coverage gap. The deductible you paid in the first phase, all the copayments and coinsurance you paid in the initial coverage and coverage gap phase along with the manufacturer discount from the coverage gap phase all count toward your Total Out of Pocket Cost (TrOOP). Costs that you paid that do not accrue to your (TrOOP) are your monthly premium, any amount you paid for drugs that were not in your plans formulary, and any drug costs paid by other insurance.
- Catastrophic Phase – Once your Total Out of Pocket Cost (TrOOP) reaches $6350, you will pay a minimum of $3.60 for generics and $8.95 for brand name drugs, (or 5% of the retail price, whichever is higher.)
Call us at (888) 860-1002 for a FREE consultation.