Medicare Part D – Medicare Prescription Drug Plan
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
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 one has 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 added to the premium for the plan chosen. In 2017, the Centers for Medicare and Medicaid Services (CMS) has set the national base premium cost of a drug plan at $35.63. If a beneficiary had waited 5 years from the time he was first eligible to enroll in a Medicare Part D Drug Plan, he would have a 5-year or 60-month penalty added to the monthly cost of his premium for the rest of his life. For example, if his plan’s premium is $25.00, the math would look like this:
(1% times the base premium cost of $35.63) times (60 months) plus plan’s premium of $25.00 = $46.38 or (0.01 X 35.63) X 60 + $25.00 = $46.38. The cost of the penalty could fluctuate each year based on the average base premium.
Types of Plans Available
There are two types of plans through which Medicare Part D benefits can be received: a stand-alone Prescription Drug Plan (PDP) or 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) If a beneficiary chooses an MA-PD plan, he must also be enrolled in both Medicare Parts A and B. In addition to these plans, some beneficiaries receive their prescription drugs through plans offered by their employer. These employer plans must equal the coverage provided under Medicare Part D so that should the beneficiary ever leave the employer plan to switch to Medicare Part D, the employer’s plan would be certified as creditable coverage. If it is not, the beneficiary may have to pay a late-enrollment penalty.
Enrollment in Medicare Part D
There are a number enrollment opportunities specific to a beneficiary’s circumstances.
- During his Initial Enrollment Period (IEP) when he first becomes eligible for Medicare
- During the General Enrollment Period from January 1 to March 31 if he is signing up for Medicare Part B for the first time
- During the Annual Enrollment Period (AEP) from October 15 to December 7
- At any time he qualifies 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 his 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
If a beneficiary changes drug plans during any of these enrollment periods, he will automatically be disenrolled from his current Medicare drug plan. He does not need to cancel the old Medicare drug plan.
In addition, a beneficiary 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 his Medicare Advantage plan includes prescription drug coverage and he enrolls in a Medicare Part D plan, he will automatically be disenrolled from his Medicare Advantage Plan and returned to Original Medicare.
Counting the Cost of a Medicare Part D Prescription Drug Plan
The cost of a Medicare Part D Drug Prescription Drug Plan is governed by a number of factors.
- The monthly premium for the plan chosen
- The annual deductible as well as copayments or coinsurance
- The coverage gap
- The drugs the beneficiary is taking in relation to the formulary of the plan
- The retail price the plan has negotiated with the manufacturer
- The pharmacy used
- The beneficiary’s eligibility to receive Extra Help
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 with the medications being sorted on a tier system with price levels determined by tier. Because each insurer negotiates its own price with the drug manufacturers, the same group of prescriptions may have a different total negotiated retail price when compared between different insurance plans. Before enrolling in a plan, it is necessary to make certain that one’s drugs are part of 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 as 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.
How to Enroll in a Medicare Part D Prescription Drug Plan
There are a number of ways to enroll in a Medicare Part D Prescription Drug Plan
- Enroll through a licensed insurance agency
- Enroll directly with the carrier
- Enroll through Medicare
By contacting Medicare directly, you are able to receive an unbiased recommendation for the lowest cost plan and you can enroll in the plan directly through Medicare. This can be done online through the Medicare Plan Finder.
At this site, you will need to provide your Medicare information, last name, date of birth, zip code, and a list of all your medications and the plan finder will sort all the available plans according to cost to present you with a list of options. A Medicare agent will be happy to help you through this process. Medicare is open 24 hours a day, 7 days a week and the best time to reach an agent without experiencing a lengthy time on hold is late in the evening. Phone Medicare toll-free at (800) 633-4227.
You can also receive free, personalized counseling from your State Health Insurance Assistance Program (SHIP). To find the phone number for your state, visit shiptacenter.org or phone Medicare at (800) 633-4227.
Coverage Phases of Medicare Part D
The Medicare Part D program is broken down into 4 phases.
- Deductible Phase – During the initial phase, the Deductible Phase, you will pay 100% of the cost of your prescription drugs. Most plans have a deductible and the amount can vary by plan but CMS caps the deductible at $400 in 2017 as the highest deductible a plan may charge.
- Initial Coverage Phase – Once you reach the Initial Coverage Phase, your plan will begin to pay its share of the prescription cost and you will pay either a copayment or a coinsurance amount. This phase continues until the amount you and the plan have paid totals $3700 in 2017. (The deductible that you paid initially is included in this amount.) At that point, the coverage gap, also known as the donut hole, begins
- Coverage Gap (Donut Hole) – The Coverage Gap lasts until your out-of-pocket costs have reached $4950 in 2017. While in the Coverage Gap, you’ll pay 51% of the cost of a generic drug and dispensing fee and your plan will pay the remaining 49%. Only the amount you pay for a generic drug counts toward the $4950 out-of-pocket cost needed to be paid before you are through the gap. The amount your plan pays for generic drugs does not count toward your out-of-pocket spending. Brand-name drugs work differently. First, the drug company discounts the drug by 50%. You pay 40% of the original cost and dispensing fee and your plan pays the remaining 10%. Both the 40% that you pay and the 50% discount offered by the drug company count towards your total out-of-pocket cost. The 10% paid by your plan for brand-name drugs does not.
- Catastrophic Coverage Phase – You are out of the coverage gap once you have spent $4950. During the final phase, the Catastrophic phase, you’ll pay a $3.30 copayment for a generic drug with a retail price under $66 and a 5% coinsurance payment for a drug with a retail price that exceeds $66.00. For a brand-name drug, the copayment is $8.24 for a drug with a retail price up to $165 or a 5% coinsurance payment for any drug with a retail price that exceeds $165.
So, to recap, what costs count towards the out-of-pocket amount needed to be paid to get you through the coverage gap?
- The annual deductible, copayments, and coinsurance
- The discount you receive on brand-name drugs during the coverage gap
- The 51% you pay for generic drugs and the 40% you pay for brand-name drugs during the coverage gap
And, these amounts do not count toward the $4950 needed to be paid to get you through the coverage gap.
- The monthly premium payment paid for your Medicare Part D Prescription Drug Plan
- Any amount you may pay for non-covered drugs
- Any drug costs paid by other insurance
For more in-depth information, see specific articles on: