Medicare Part D covers prescription drug costs for Medicare beneficiaries through private plans. These plans are sometimes also referred to as “Medicare Rx” and “Prescription Drug Plans” (PDPs). Part D helps to cover the cost of prescriptions that are filled at the pharmacy or through mail-orders. One common mistake enrollees make about Original Medicare coverage (Part A and Part B) is that all medical costs are included. However, this is not the case. Having a full understanding of what Medicare Part D covers and doesn’t cover, and what your choices are, will help you in selecting the best coverage option for your needs. And it can potentially save thousands of dollars in out-of-pocket expenses.
Prescription Gaps with Original Medicare
As a quick overview, Original Medicare (Part A and Part B), is a government-sponsored health care program that most seniors enroll in when they turn 65. These benefits are provided by Medicare.
Medications Covered under Part A
Medicare Part A is often referred to as “Hospital Insurance.” Part A covers:
- Inpatient care in a hospital
- Skilled nursing facility care
- Nursing home care (inpatient care in a skilled nursing facility that’s not custodial or long-term care)
- Hospice care
- Home health care
So, if a patient is prescribed medications during a hospital stay, then the cost of those medications would be covered under Part A. However, if a patient is treated inside the hospital and the doctor writes a prescription for medications to be picked up at a pharmacy upon being discharged from the hospital, those prescriptions would not be covered under Part A.
Medications Covered under Part B
Medicare Part B (Medical Insurance) is widely known as the part of Medicare that covers doctor visits for:
- Preventative care
- Medically necessary services
Under Part B, very few medications are covered, unless they require a doctor or nurse to give them, such as flu shots, or a nebulizer treatment, to name a few. In most cases, you’ll be given a prescription to be filled through a pharmacy. A specific drug plan will be needed to avoid paying out-of-pocket.
While an occasional out-of-pocket cost seems manageable, monthly recurring prescription costs can leave a big dent in the bank account. Historically senior’s out-of-pocket expenditures for prescribed medicines are more than double that of the non-senior population. That’s why affordable prescription coverage options are provided.
What is Medicare Part D?
“Medicare prescription drug coverage (Part D) helps you pay for both brand-name and generic drugs. Medicare drug plans are offered by insurance companies and other private companies approved by Medicare.” – Centers for Medicare and Medicaid Services
In other words, Medicare Part D is insurance for your prescription drug needs.
There are two main options for Medicare Part D coverage:
Option 1 – Part D (stand-alone)
Enrollment in Medicare Part A OR Medicare Part B.
Option 2 – Medicare Advantage Plan with Prescription Drug plan (MA-PD)
Enrollment in Medicare Part A AND Part B.
Since Part D coverage is offered through insurance companies and other private companies, each plan can vary. Checking individual plan benefits to ensure the best fit for your needs is highly recommended. While this can seem like an overwhelming task, one helpful tool to use is the unique drug list (Formulary) each Medicare drug plan has.
According to Medicare.gov, a Formulary is “information about a plan’s list of covered drugs.” This list is made up of both brand names and generics. Within each formulary, there are at least 2 common drugs prescribed. For example, if you have been prescribed brand “A” for lowering cholesterol, your plan’s formulary may not cover the cost of brand “A,” but will cover brand “B.”
Prescriptions are organized within formularies by tier. The higher the tier number, the more expensive the medication.
Here’s an example of a drug plan’s tiers from Medicare.gov:
- Tier 1 – Most generic prescription drugs. Lowest copayment.
- Tier 2 – Preferred, brand-name prescription drugs. Medium copayment.
- Tier 3 – Non-preferred, brand-name prescription drugs. Higher copayment.
- Specialty Tier – Very high-cost prescription drugs. Highest copayment or coinsurance.
This information is important so you can evaluate each plan’s formulary and how it matches up to the prescriptions you currently take and want to make sure you are covered for in the future.
If you need assistance in comparing your prescription needs with various Part D Plans, we have advisors available to assist.
Costs Covered and Not Covered under Part D
While Part D certainly helps bridge the gap for out-of-pocket prescription drug expenses, it does not cover them completely.
The terms below from Medicare.gov explain common words and phrases associated with the costs of Part D Coverage.
Coinsurance — An amount you may be required to pay as your share of the cost
for services after you pay any deductibles. Coinsurance is usually a percentage
(for example, 20%).
Copayment — An amount you may be required to pay as your share of the cost
for a medical service or supply, like a doctor’s visit, hospital outpatient visit, or
prescription drug. A copayment is usually a set amount, rather than a percentage.
For example, you might pay $10 or $20 for a doctor’s visit or prescription drug.
Coverage gap (Medicare prescription drug coverage) — A period in which you pay higher cost sharing for prescription drugs until you spend enough to qualify for catastrophic coverage. The coverage gap (also called the “donut hole”) starts when you and your plan have paid a set dollar amount for prescription drugs during that year.
Deductible — The amount you must pay for health care or prescriptions before Original Medicare, your prescription drug plan, or your other insurance begins to pay.
Premium — The periodic payment to Medicare, an insurance company, or a health care plan for health or prescription drug coverage.
Once the annual Part D deductible has been met, you can take advantage of plan benefits. The standard Part D deductible for 2021 is $445. Some plans may have smaller deductibles. If you are only getting prescriptions from the lower level tiers (i.e., Tier 1 and 2), which likely include generics, your deductible may only be a few dollars. The Part D deductible varies by plan.
Initial Coverage Level
Once your plan deductible is met, you will begin paying only the coinsurance or copayment amount. The coinsurance or copayments will all be unique to each specific drug plan. This stage of the coverage is also known as the “Initial Coverage” level.
The Coverage Gap/”Donut Hole”
Plan D has a spending limit under the Initial Coverage Level, meaning once you and your drug company reach a certain amount, the begins and the Initial Coverage level ends. For 2021, that limit is $4,130.
According to Medicare.gov, “Once you reach the coverage gap, you’ll pay no more than 25% of the cost for your plan’s covered brand-name prescription drugs.”
Once your True Out-of-Pocket expenses (TrOOP) reach a certain amount, which is $6,550 in 2021, your Part D plan will begin providing drug benefits under the Catastrophic Coverage level. In this level, your prescription drug costs typically go down. Copayments and coinsurance amounts vary by plan, but often are as little as 5% or only a few dollars for generics.
See “What are the Medicare Part D Costs? ” for an in-depth understanding of Part D costs.
Keep in mind, January 1 of each calendar year brings a reset on benefits, premiums, deductibles, copayments, and accrued out-of-pocket spending. Each year Part D plans and benefits change. You may switch Part D Coverage during the Medicare Annual Enrollment Period (October 15 – December 7).
Exceptions to Part D Coverage
If you have benefits through the VA, group health care, or other third-party, coverage may be different. We recommend talking with your benefits administrator, or scheduling a consultation to discuss your situation.
How to Select a Part D Plan
Selecting prescription drug coverage that is right for you can result in big savings. Here are a few things to consider when finding the best plan for you.
- Make a list of all the medications you currently use.
- List what plans cover the medications you are currently on and which do not.
- Consult with your doctor on any that may be on the horizon.
- Note the cost and dose of each prescription.
- Which plans allow you to fulfill your prescriptions at your local pharmacy vs. mail order?
- What are the monthly premiums and deductibles for each plan?
- What would your total out-of-pocket expense be for the year with current prescriptions?
Would you like advice on Part D specific to your situation?
Eligibility for Medicare Part D
You can enroll in a Medicare Part D Plan or a Medicare Advantage Plan as soon as you are eligible for Original Medicare.
Those eligible typically fall into one of the following categories:
- 65 or older
- Under age 65 with certain disabilities
- Of any age and have End-Stage Renal Disease (ESRD)
Medicare Initial Enrollment Period (IEP)
For those turning 65 or just turned 65 looking to enroll, there is a 7-month Initial Enrollment Period. This window includes:
- 3 months before 65th birthday
- The month of 65th birthday
- 3 months after 65th birthday
Delaying Enrollment in Part D
Beneficiaries who delay enrollment in a Part D plan will have to pay a long-term late penalty fee which is applied to your monthly premium for as long as you have Medicare coverage. As outlined by Medicare:
“Medicare calculates the penalty by multiplying 1% of the “national base beneficiary premium” ($33.06 in 2021) times the number of full, uncovered months you didn’t have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium.”
Annual Enrollment Period (AEP)
If you do not enroll in Part D, either through a stand-alone plan or through Medicare Advantage when first eligible, you will have to wait to enroll in prescription coverage until the Medicare Annual Enrollment Period. The Annual Enrollment Period runs from October 15–December 7. During this time frame, you may sign up for a Medicare Part D plan. However, benefits will not begin until Jan 1 of the following calendar year.
For those already enrolled in a Medicare Part D plan, but would like to make changes to prescription coverage, plan changes can be made annually during AEP. Since plans and needs change often, it is highly suggested to speak with an advisor to make sure you are receiving the best level of benefits for your needs.
Enrolling in a Part D Plan
It’s important to note that you are not automatically enrolled in Medicare Part D as soon as you sign up for either Part A or Part B. There is an extra step to enrolling for Medicare Part D. You must be enrolled in Original Medicare (Part A and Part B) to get Medicare Part D coverage. For information on enrolling in Original Medicare, see What You Need to Know About Signing Up for Medicare.
If you need any assistance with enrollment in Original Medicare, Part D Plan, or Medicare Advantage Plan, one of our licensed agents can assist you. All advisors provide unbiased plan information to assist you in selecting the best plan to fit your needs.