It goes without saying that your prescription drug coverage is one of the most important parts of your Medicare coverage as a whole. Your Part D plan can make a big difference in your annual drug costs, but if you're not sure what your options are, it can be a little confusing.
By the time you're finished with this article, you'll understand what you need to know about Medicare Part D, how it works, what it costs, and how to find the best Part D plan for you.
What is Part D and what does it cover?
Simply put, Part D is your prescription drug plan. You are required to have either a Part D plan, or some other form of acceptable coverage, also known as “creditable coverage,” or the government will tack on a penalty whenever you do finally join a Part D plan. We’ll go into that a little bit later on.
If you’re enrolling in a Medicare Supplement, and don’t have any other kind of prescription drug plan, you’ll need to also enroll in a Part D plan if you haven’t already.
On the other hand, if you’re enrolled in a Medicare Advantage plan, and you already have prescription drug coverage through that plan, you cannot enroll in a Part D plan.
Part D covers your prescription drugs, specifically most of your outpatient drugs. If you’re administered a prescription while admitted to a hospital or a skilled nursing facility, those will be covered by your Part A instead. Other drugs, specifically dialysis drugs administered by your provider or at a dialysis facility are covered by Part B. Chemotherapy drugs for cancer treatment are also covered under Part B as well.
Each plan will have a very long list of drugs that it covers, but we’ll talk about that later.
Now, don’t worry, you don’t need to write all that down or memorize it. Just know that if you’re picking up your prescriptions from a pharmacy, or order them online, it’s almost certainly covered by Part D.
What does it NOT cover?
So what does Part D not cover?
When we’re talking about Part D, it’s important to remember that these plans are NOT standardized. What’s that mean for you?
In other words, Medicare has a few ground rules about what they’re allowed to charge you, and a few other things, but outside of that, they can cover anything they want.
So when we’re talking about what Part D doesn’t cover, it’s usually more of a conversation about what most insurance companies don’t like to cover on these plans. Think of the following list as a general guide more than a list of rules set in stone.
The following items are generally not covered by your Part D plan, though your plan MAY be different. You should always check with the company if you have any specific questions.
As I said, these aren’t really hard and fast rules, so it’s possible that your plan may cover some of these. For example, the vast majority of Part D plans don’t cover viagra, but many plans may cover the generic equivalent, Sildenafil.
Always check with the company if you have any questions. There are literally thousands of different Part D plans across the country, so it’s impossible to know for sure without checking with the individual company that offers the plan you’re interested in.
How does Part D work?
There are two big things that make every Part D plan work, and you need to understand both of them.
The first is what’s called a Drug Formulary, and the other is called your Part D phases. Let’s talk about both of them.
A Formulary is another word for a list of drugs that your Part D Plan covers. Most plans have pretty similar lists, but if you’re taking a highly specialized drug, you’ll want to be sure that it’s covered by using the plan finder tool on Medicare’s website.
Each plan’s formulary is organized into different tiers, usually five, with the lowest tier drugs being the cheapest, and the higher tiers being the most specialized and expensive.
I cannot stress this enough, each plan is different, and each plan can change from year to year, including the plan you’re on currently. Make sure you do your research each and every year during AEP so that you’re going with the right plan.
If you’re unsure or just have questions, give us a call and we’ll be happy to help you out.
Part D Phases
There are four phases or levels to your Part D plan, and they all revolve around how much you spend on prescriptions during the calendar year.
Keep that phrase in mind, calendar year, because that’s how long it lasts, and once you’ve made a decision, you usually cannot start a new plan until January 1st of the following year. So make sure you make the right decision.
In this portion of the plan, you pay the full retail cost of the drugs, but depending on the plan you choose, there may be a special reduced cost, especially if you’re using a generic or a “Tier 1” drug. Whatever the cost, they’ll be laid out in black and white when you choose your plan.
You’ll pay 100% of the cost of the medication you use until your total out of pocket expenses reach your deductible amount. That could be different depending on your plan, but the maximum allowable deductible as set by Medicare as of 2020 is $435.
A lot of people never get out of this phase, especially they only use generic drugs, which you can usually get for a couple dollars, or possibly even free for some drugs.
Initial Coverage Phase
Next up is the initial coverage phase. At this point you’ll pay a specific copay for each drug as listed on your plan. The great thing about Medicare’s plan finder tool is that you can find out exactly how much each drug you’re taking now will cost at this stage with each plan that you’re considering.
For people taking higher tier drugs, especially specialized drugs for chronic illnesses, or newer brand name drugs, this can be a big money saver. You stay in this phase until your total drug costs come to $4,020.
Notice, I said total drug costs, because both your costs and the insurance company’s cost is factored in to get to that number. It’s based on the actual retail cost of the drug, and once you’ve surpassed that, you enter what’s called The Coverage Gap.
The Coverage Gap (The Donut Hole)
The Coverage gap is sometimes called “The Donut Hole” because it’s where you’ll end up paying the highest percentage of your drug costs after the co-payment phase, and before your catastrophic coverage kicks in.
In this phase you’ll pay 25% of the RETAIL cost of your prescriptions. This will not be the same copay cost that you were paying during the initial coverage phase, but whatever the retail cost that your plan has listed for the drugs you’re taking.
Once again, this is why the Medicare plan finder tool is so helpful. You’ll be able to see all of this ahead of time as you’re shopping around for your Part D plan during the Annual Enrollment Period.
Obviously you want to stay in the initial coverage phase for as long as possible, but it’s very helpful to know exactly what you’ll be dealing with, when and if you get into this phase of your Part D plan.
Now, the good news is that this doesn’t go on forever. Once your personal out-of-pocket costs reach $6,350, you enter the final phase of your Part D plan, what’s known as catastrophic coverage.
Catastrophic coverage comes into effect once you’ve surpassed the spending amounts for all other phases of your Part D plan. The first thing you should know is that there is NO maximum out of pocket amount for your catastrophic coverage phase.
I’ll repeat that again, there is NO maximum out of pocket for your catastrophic coverage phase. It’s important to keep this in mind when shopping for new plans during your annual enrollment period. Once you reach this phase, you’ll be paying either a specific co-pay or 5% of the retail cost of the drug, whichever is more, for the rest of the calendar year, until your plan restarts on January 1 of the following year.
Now, the vast majority of people will never reach catastrophic coverage, but for people with a serious illness, or who need to take a high amount of Tier 4 and 5 drugs, this will still save you a lot of money.
The Part D Penalty - What it is and how to avoid it
But what if you’re just turning 65 and you’re saying to yourself, I’m healthy, I never go to the doctor, and I don’t have any prescriptions. Why should I bother signing up?
Well there are two really good reasons, there’s the immediate penalty you’ll pay, and there’s also a tremendous risk you’re running as well.
Let’s talk about the actual dollars and cents first. Your Medicare Part D penalty is calculated by multiplying 1% of the national base beneficiary premium by the number of months you went without a Part D plan or other creditable prescription drug coverage.
As of 2020, the national base beneficiary premium was $32.74, so one percent of that would come to about 33 cents. So for example, if you went without creditable coverage for three months, once you enrolled in a Part D plan, your penalty would be an extra dollar per month. 3 percent of 32.74 actually comes out to 98 cents, but Medicare rounds that to the nearest 10 cents, and here’s the kicker, that penalty lasts the rest of your life!
Now, is an extra dollar a month gonna break the bank? I hope not, but that’s not really the biggest problem with putting off your Part D decision.
When you first become eligible to enroll in Medicare, you have a 7-month window to pick a Part D plan. That’s three months before you turn 65, the month you turn 65, and then the three months immediately after.
If you don’t sign up for a plan during this period, you won’t be able to do so again until the annual enrollment period, which means you won’t have any prescription drug coverage in affect until the following January.
Here’s the other part you may not know. Once you enroll in Medicare, that’s Part A & B, no one is allowed to sell you a prescription drug plan from anywhere else. If you don’t have a Part D plan, you’re out of luck until the start of next year.
We buy insurance to protect against the unknown, now what happens when you get seriously injured or sick and you’ve gotta pay full price for all your prescriptions?
Would you drive your car around for months at a time without insurance on it? I hope not. Why would you do the same thing with your body? Do yourself a favor and get a Part D plan, because you never need help paying for prescriptions, until you do.
How much does it cost?
Like we talked about earlier, there are literally thousands of different plans all around the country with their own unique costs and benefits. All that said, MOST of the time, you can expect to pay somewhere in the ballpark of $30 per month for your Part D plan premium.
To be more specific, let’s take that number we gave you a minute ago, the national base beneficiary premium of $32.74.
That doesn’t mean that’s the amount you’re going to pay. Medicare WILL charge you more per month if your income was over a certain amount.
Here are the numbers direct from the Medicare.gov website. As of 2020, if you made $87,000 or less as an individual, or $174,000 or less when filing jointly, you won’t have to worry about paying any extra. However, after that you’ll get an extra charge added to your premium each month.
Yes, I’m sorry to be the bearer of bad news here, but the government will charge you extra if you make more money. This is what’s known as the “Income-Related Monthly Adjustment Amount” or IRMAA for short. Medicare does the same thing with your Part B, but the premiums will be calculated differently.
Medicare bases this off your tax returns from two years ago, so if you’re watching this in 2020, your 2018 tax returns would be used, because this is the most recent tax return provided to Social Security by the IRS.
You can appeal the decision by Medicare, but if you’re denied, you’ll have to pay the monthly premiums until the following year. That’s the good news here, because if your tax returns next year show your income is under that amount, your premium will decline to the appropriate level.
To make it simple, you have the option to deduct your monthly premiums from your social security check. Just contact the insurance company you have your Part D plan with and they’ll walk you through exactly how it works.
How to find the best plan for you
Medicare has put together a very handy tool called the Medicare Plan Finder, where you can enter in your information, as well as any prescription drugs you’re taking, and find the plan in your area that best fits your needs.
If you already have an existing account with Medicare.gov, there’s a good chance that you may already have a lot of your existing prescriptions stored on the site, but just for the sake of demonstration, let’s assume that you’re starting from scratch.
So as you can see here, I’m going to click the option “Drug plan (Part D)” and enter my zip code.
Just for the sake of example, I’m going to check here that I’m not receiving any extra help, but if you are, make sure to put that in.
On the next page when it asks whether or not you want to see your drug costs, make sure you check “Yes”. That’s a major piece of the puzzle when you’re making this decision, so you want to be sure you have all your information available.
I also recommend checking the “Both” option when it asks about using a retail or mail order pharmacy. Your plan will almost always have a mail order option, and sometimes you can get a better price by ordering through the mail as opposed to picking it up in person.
Next you’re gonna want to add the list of drugs you’re taking. You can get extremely specific with the kinds of drugs, as well as the dosage and frequency, so be sure to include everything you’re using.
In this example we’re just gonna use a couple of generic drugs to keep this moving along. The important thing here is you understand how to use the website to find what works best for your situation.
Once you’re done adding drugs to your list, click ahead to the next page.
Here’s where you’ll pick the pharmacies that you use all the time. You can choose up to three different pharmacies to compare. Notice that I’ve only selected two on the map, since I’ve already got the mail order pharmacy selected.
This doesn’t mean that these are the only places you’ll be allowed to go to pick up your prescription, but you do want to make sure that whichever pharmacies you pick here are the ones that are easiest to get to.
Now we come to the long list of prescription drug plans available in your area. Notice you have a couple of different ways to filter and sort through your plans.
First, with the green “Filter” button on the top right, you can sort by the plan’s star rating. This rating is put together by the Centers for Medicare and Medicaid Services (CMS) and measures four categories of service:
The bottom line is that these ratings come from Medicare, not any private insurance organization.
You can also pick your preferred insurance company, if that’s something you care about.
Also, see that check box over there on the left? You can filter out any drug plan that doesn’t cover you across the US. This is helpful if you live near a state line, or maybe you just like to travel across the country, and you want to make sure you’re covered just in case.
So I’ll click on that box and hit “Apply Filters”, and now all the plans we have left are valid across the United States.
You can sort your plans three different ways:
In general, I recommend you sort by the lowest drug & premium cost since that’s going to give you the most accurate idea of what your cost for the year will be.
If you have a couple of different plans you’re not sure about, you have the option to compare up to three of them at a time. Just click the “Add to Compare” button and you’ll get a blue bar on the bottom of your screen like this with all three plans you’ve chosen.If you’re very healthy, if you’re one of those people who never goes to see the doctor, and you just don’t have more than one or two generic prescriptions that cost very much, then you still have the option to sort by the monthly premium.
Another common question is whether or not you should use this opportunity to plan for the worst case scenario. For example, should you do research on how much your drug costs would be if you were diagnosed with cancer?
Unless you’re a doctor, I’d advise against it. There are too many unknowns, and too many different kinds of cancer therapies depending on your situation. If you’re that worried about a potential cancer diagnosis down the road, your best bet would be a cancer insurance policy. Learn more about your options here.
As you scroll down through the comparison screen, you’ll get an estimate of all your total cost with each plan, including through the mail order pharmacy option.
Once you’re ready to enroll, just click the “Enroll” button and get started.
Need more help?
Here at Senior Benefit Help, we offer a free annual policy review service that can help you figure out what plan is best for you.
If you’re not already a policyholder with us, give us a call at 800-701-3951 or click here to send us a message.