Understanding Medicare Part D
It’s critical to understand how Prescription Drug Plans (or Part D of Medicare) work. Being unaware of Prescription Part D basics can lead to overpaying for your plan's premium, enrolling in a plan that doesn’t cover all your prescriptions, or paying a late enrollment penalty resulting from not knowing your enrollment period deadline.
Medicare Part D Basics
Part D of Medicare provides prescription drug insurance for those 65 and over and certain individuals with disabilities. The Centers for Medicare and Medicaid Services (CMS) sets the rules and regulations that govern Part D plans.
Private insurance companies such as United Healthcare, Humana, Anthem BCBS, Aetna market Part D plans under contracts with the CMS.
However, each Part D plan sets their own premiums, vary by the cost sharing of the drugs within the plan, and have their own formularies (covered drug list) which may not cover all your prescriptions.
When choosing your Prescription Drug Plan (PDP), you want to be compare monthly premiums, know each plan’s deductibles, understand the co-pays and coinsurance of the plan for your prescriptions, and make sure your prescriptions are covered by any plan under consideration.
Thankfully, Medicare has a Plan Finder Tool that will “shop” the 24 – 30 Part D plans available in your zip code for you. After inputting your drug list into the Plan Finder, this tool will filter through the plans in your zip code by plan premiums, deductibles, and drug cost and rank the plans from estimated lowest annual cost to highest. You can then confidently chose the plan that of greatest value to you.
If you're not comfortable with going online and using Medicare's Plan Finder Tool, a good independent Medicare agent in your area will be familiar with how to use it and assist you at no cost.
Medicare drug coverage is provided by one of two ways:
>Enrolling in a “stand-alone” Medicare Part D plan covering only prescription drugs.
>Enrolling in a Medicare Advantage (MAPD) plan that includes Medicare Part D coverage along with Part A and Part B benefits.
A Late Enrollment Penalty is accessed to your Part D premium for missing your Initial Enrollment Period deadline or going without Part D coverage.
Part D stand-alone plans are typically paired with Medicare Supplement plans. Premiums for stand-alone plans range from under $20 to over $100 dollars.
Medicare Advantage plans with Part D coverage (MAPD's) range from the $0 to about $60 dollars, depending on where you live and the plan benefits.
Having both a MAPD plan and a stand-alone Part D plan is prohibited. You will have to do your homework (or work with an experienced Medicare agent) to find out what option is best for you.
Eligibility – When Can You Enroll in a prescription drug plan?
You must be at least 65 years old or if you’re under 65, qualify based on a disability.
You must be a United States citizen or a legal resident who has lived in the U.S. for at least 5 consecutive years.
You must be entitled to Medicare Part A and/or enrolled in Medicare Part B
You must permanently reside in the service area of the Part D plan service area.
You must have a valid enrollment period that allows you to enroll or dis-enroll in a plan.
Valid Enrollment Periods
Your Initial Enrollment Period (IEP) is 7 months long. It includes your 65th birthday month plus the 3 months before and after your birthday month. (It begins 1 month earlier if your birthday is on the first day of the month).
The Annual Enrollment Period occurs each year between October 15 – December 7. During the Annual Enrollment period you can add, drop or switch your plan. You’ll be aware of it by the amount of mail and commercials that promote it.
If you have a Special Enrollment Period due to certain circumstances such as moving, loss of your employer or retiree insurance coverage through retirement or plan termination, qualify for Extra Help from a state assistance program or are diagnosed with certain disabilities or health conditions.
Medicare Drug Payment Stages
Private insurance companies have contracts with the federal government that allow them to market Part D plans. Part D plans follow the federal model of standard guidelines. Commonalities among Part D plans include:
Four Stages; (1) Annual Deductible, (2) Initial Coverage, (3) Coverage Gap (Donut Hole) and (4) Catastrophic Coverage.
Annual Deductible: The Annual Deductible maximum is set by Medicare every year. In 2021, the Annual Deductible max is $445. Many Medicare Part D plans have a $0 or very low deductibles for lower Tier drugs. Other plans may waive the annual deductible for all Tier levels. In the Annual Deductible stage, you pay 100% of the deductible (if there is one) and the plan pays nothing.
Initial Coverage: In this drug payment stage of the plan model, you pay a co-pay or co-insurance and the plan pays the remainder. After the initial coverage limit ( $4020 in 2020) has been reached, you move to the next stage called the "Donut Hole" or Coverage Gap stage.
Coverage Gap: The Cover Gap is often called the “Donut Hole”. In this stage your drug cost typically goes up. If you reach the Coverage Gap in 2020, you pay 25% of the price of generic and brand name drugs. Your plan will pay 75% of the price of the generic and brand name drugs. You stay in this stage until your total out-of-pocket cost reaches $6,350 in 2020.
Catastrophic Coverage: You enter the Catastrophic Coverage stage after your total out of pocket cost for the plan year is met. In this stage of Part D plans, you pay a small co-pay or 5% coinsurance amount. You stay in the Catastrophic stage for the rest of the plan year.
Understanding Coverage Specifics and Terminology
Pharmacy Networks: Drug plans use network pharmacies. To receive benefits, you must use an in-network pharmacy and show your plan member ID. You may receive lower cost-sharing at Preferred retail pharmacies or using the plan’s mail order pharmacy.
Formulary drug list: A formulary drug list is the list of drugs that a plan covers. Each plan has its own drug list. The Plan Finder Tool on Medicare.gov's website can help you find the plans in your area that cover the prescriptions that you’re using. It will also help you compare the cost of plans in your area. Keep in mind that :are typically more than 20 Part D plans available in your service area. The Plan Finder Tool or a qualified independent Medicare agent will help you select the plan that covers your drugs and keeps you from over-spending on your Part D plan.
Drug Tiers: Most plans use tiered formularies to group covered drugs according to cost. Generally, the lower the tier, the less you pay for the drug.
Star Ratings: Medicare uses a 5-star system to measure how well plan sponsors perform in different categories. These ratings help you compare plans based on quality and performance. A 1-star rating denotes poor quality and a 5-star plan rating represents excellent quality. Plan ratings are revises annually by CMS.