How Medicare Part D Prescription Drug Coverage Operates
As you approach your age of retirement, you are likely in the throes of researching your Medicare coverage options. If you are like many people, you may be concerned about prescription drug coverage under Medicare. Prescription drugs are covered under a Part D plan.
The federal government subsidizes the cost of prescription drugs under two separate Part D plans. You can select a plan that covers only prescription drugs, or you can add prescription drug coverage to your Medicare Advantage (MA) plan, which is also known as Medicare Part C.
Prescription drug coverage – The basics
If you receive Part A or Part B Medicare benefits, you also qualify to receive Part D prescription drug coverage, regardless of the state of your finances. However, your income is a factor when determining the coverage and cost of your specific plan. The number of drugs you take or the presence of pre-existing conditions does not affect your prescription drug plan.
You are not obligated to opt in to Part D coverage. If your current or former employer’s or your union’s benefits provide a better prescription drug plan, you can forgo Part D enrollment and opt in to the superior plan. If you do not currently take prescription drugs, you can still enroll in Part D to ensure you are covered if and when you need prescription medication. Simply choose the plan with the lowest premiums from a carrier that offers coverage in your area.
PDP vs. MA-PD
Medicare offers two options for prescription drug plan (PDP) coverage. The PDP option provides the policyholder with prescription drug coverage only. The PDP plan is a stand-alone prescription drug benefit. This option is designed for seniors who utilize other health insurance options or the Medicare fee-for-service (FFS) plan. The Medicare Advantage – Prescription Drug (MA-PD) plan combines prescription drug coverage with medical services in one plan.
Prescription drug benefits vary by location, and the policyholder purchases a plan from a private, Medicare-approved insurance carrier. Therefore, you must shop around to find the best policy for you that is offered in your area.
Medicare Part D enrollment period – When can I sign up?
There are a couple different enrollment periods for Part D plans.
- During Original Medicare Enrollment Period: The standard enrollment period for Part D is when you are first eligible for Original Medicare, which is three months before and three months after the person turns 65 years old.
- October 15th to December 7th: If a person is presently enrolling in a Part D plan and wants to switch to a different plan or carrier, they can do that during the open enrollment period, which runs between October 15 and December 7 of each year.
- April 1st to June 30th: If you need to un-enroll in Medicare Advantage plan and get Original Medicare, however, you must do so between January 1 and February 14 and then you can enroll in a Part D plan from April 1st to June 30th.
Medicare Part D premiums
Congress has placed certain restrictions on the premiums charged by Part D plan providers. The governing body stipulates that recipients of Part D would pay 25 percent of the cost of their medications during the initial period of coverage. However, plan providers set the price for their products. Different insurance providers can determine how these costs are calculated.
Therefore, premiums can and do vary between plans, locations and companies. Regardless of your location or choice of plan, your income is used to calculate what you will pay in premiums for your Part D coverage. Each insurance provider sets the premium for its plans. The Medicare Advantage plan typically does not charge an extra premium for prescription drug coverage.
Medicare Part D surcharges
Premiums for prescription drug coverage are paid on a monthly or yearly basis. However, if your income exceeds a specified limit, a surcharge is assessed, in addition to your premium each year. If your adjusted gross income as reported on your tax return from two years prior exceeds $85,000 per year for a single filer, or $170,000 per year for joint filers, you will pay the Part D surcharge for your coverage.
The surcharge is paid directly to the Medicare program. You may be required to pay the surcharge even if an employer or union provides your prescription drug coverage. If your employer or union receives subsidies for prescription drug benefits, you may not be responsible for the surcharge.
You will always face a penalty if you do not sign up for a Part D plan when you are first eligible to do so or if you let your present plan lapse for more than 63 continuous days. The penalty is calculated by multiplying the national average Part D premium amount by 1%. That amount is added to your Part D premium after you do eventually enroll in another plan.
Selecting a Medicare Part D plan
As you approach 65, you will probably begin to receive promotions from insurance companies that offer Medicare plans in your area. Additionally, you can check the literature provided to you by the federal Medicare program. A list of qualifying insurance carriers is provided on the back of the “Medicare and You” brochure. Plans available to you will vary, so you must do your research to find out each plan’s details before you select a plan. Remember that when you select a plan, you must continue with the plan for the year, or for the remainder of the year, if you are newly eligible.
Comparing Medicare plans against one another
To compare plans, create an inventory of the drugs you take on a regular basis. The most significant cost to you will be the out-of-pocket charges for your medication, and not necessarily the premiums or copays for the plan. Next, access the Medicare site, and use the online tool to compare Part D plans in your area.
Medicare Part D payment breakdown
With Part D prescription drug coverage, you will pay:
- A monthly premium – The amount that your plan assigns as the monthly, fixed cost of your plan plus any surplus you are assigned based on your income, if you earned more than $85,000 as a single person or $170,000 as a married person on your tax return from two years prior.
- An annual deductible – Your deductible is the amount that you have to pay out-of-pocket before your Part D plan starts. This amount varies by plan and company; however, the federal government limits the amount that can be charged to plan holders. The limit for 2015 was $320 and the limit for 2016 is $360
- A portion of the cost of medications – You will be required to pay a portion for each prescription, which will either be in the form of a percentage of the total cost, or in the form of a copay. The coverage limits for Part D plans in 2015 were $2,960 and in 2016, it will be $3,310. Note that the same insurance company likely charges different copays for each of the medications you take. Each insurance provider negotiates its own deal with each specific drug manufacturer. Their pricing is reflected in the cost passed on to you. Some companies may offer very low copay for the same drug, while another company will charge a higher copay.
- A percentage of donut hole costs – The coverage gap, also known as the donut hole, occurs when the costs of your medications exceeds the initial limit for coverage. For generic drugs, the 2015 cost was 65 percent for generic drugs, and 45 percent for brand name medications. In 2016, these percentages will change to 45 percent for brand name drugs and 58 percent for generic drugs. In 2015, the coverage gap ended when your out-of-pocket costs exceed $4,700 and 2016 the new threshold is $4,850.
- Catastrophic care costs – After you are out of the coverage gap, you can expect to pay no more than 5 percent of the cost of your prescriptions. This will apply for the catastrophic coverage period of your policy through the end of the year.
- Extra help – If your income is below a certain level, or if you already receive full Medicare benefits, you may qualify for the Extra Help program. The Extra Help program provides assistance to Part D recipients who cannot afford to pay the supplemental costs for medications. More information for this program can be found in Medicare publications and on the website.
Visit the Medicare site at www.medicare.gov for more information about Part D benefits. Use the online tool to find plans in your area. Take some time to compare the prices offered by each plan for the drugs you take. By spending a little time researching your options, you can find the plan that is right for you.