Learn about Medicare Part D

What is Medicare Part D?

The Medicare Part D drug plan is a federal government program designed by Medicare to help all citizens who are eligible for Medicare benefits pay for prescription drugs. It began on January 1, 2006, and has been a beneficial cost-saving tool for seniors. Prior to Medicare drug coverage, most seniors had to find prescription coverage through a confusing web of private insurance companies. Now there is a single source for prescription drug coverage. Although administered by private insurers, the plan offers a nice range of coverage for a reasonable cost. In 2012, 32 million individuals were insured for prescription drug coverage under either the Prescription Drug Program (Medicare Part D), or the Medicare Advantage component (Medicare Part C), according to Kaiser Family Foundation.

The Medicare Part D plan works in a way that is similar to most health coverage. Simply stated, the senior pays a monthly premium to belong to a plan, and a small part of the drug cost at the pharmacy each month. However, some serious issues can occur along the way. We hope to explain those to you and how the Part D benefits work.

Many Plans, One Complicated Choice

Medicare encourages competitive bidding among the private insurance companies that provide Part D coverage. This approach translates to affordable plans from household names like Humana, AetnaMedicare and Silverscript. However, it can also result in confusion for seniors as they try to pick out the best plan from a seemingly endless list.

Raising the stakes is the fact that plan enrollment runs from October 15 to December 7, with no way to opt out. Once the choice is made, one is stuck with it, for better or worse, until that date. Also, enrollees who fail to meet certain deadlines could face a financial penalty.

Given the complexity of Part D, seniors are well-advised to educate themselves before making a decision. Sources of information include the Drugs.com website and hotline and the offical Medicare website. Many private insurance agents now offer Part D counseling, and AARP also provides education, as well.

Enrolling in Part D Plans

The enrollment process involves two parts. First, the senior chooses a Part D plan, either a Prescription Drug Program (PDP) or a Medicare Advantage plan. Secondly, an application usually needs to be filled out. Once those parts are done, the senior receives an ID card, which they present to a pharmacy. The chosen Part D plan then starts to help pay for their prescription drugs. The plan choice then runs for the calendar year.

The Medicare enrollment window is three months before one’s 65th birthday to three months after the month of their 65th birthday. If the individual misses the enrollment window, they must wait to join a plan during the Open Enrollment Period unless they qualify for an exception. The Open Enrollment Period is October 15 to December 7 every year. During the Open Enrollment Period, individuals can add, drop or change their Part D coverage. This is the only time of year one can do this, unless they qualify for an exception. It is important to know the Medicare enrollment window. For those who miss it, they might have to pay a penalty, pay higher rates or have fewer choices. For each month enrollment is delayed, the individual may have to pay an additional one percent of the national average premium per month. When you do enroll in Part D, you'll continue to pay this penalty for as long as you're enrolled.

Exempt are seniors who have coverage Medicare deems "as good as or better" than Medicare, also called creditable coverage. In other words, those with private health insurance (e.g., a pension or union benefits) or another form of federal prescription coverage will not be penalized should they ever need to enroll in Part D. One caveat: Proof of the "as good or better" coverage must be provided. Seniors must be sure they have copies of this documentation.

Making Sense of Drug Costs

Prescription drugs covered by Part D are divided into four price levels called tiers, with Tier 1 being the lowest and Tier 4 the highest. Some plans may only have three Tiers. Generics and inexpensive drugs are low-tier drugs; brand-name and costly drugs carry high tier numbers. (Some plans use names instead of numbers, but the structure remains the same.) Lack of consistency among Part D plans means that tier designations further complicate plan selection. For example, a certain drug might be labeled Tier 2 on one plan and Tier 3 on another, yet cost less under the second plan.

Not all drugs available in the United States are covered by Part D. Drugs used for purely cosmetic purposes, nonprescription drugs, as well as ED remedies such as Viagra and Cialis, are also excluded. Barbiturates will be included only when used in the treatment of epilepsy, cancer, or a chronic mental disorder. Finally, some plans refuse to cover drugs on the basis of prohibitive cost or lack of a rebate from the manufacturer.

As a general rule, tier rankings and exclusions should not dictate plan choice. The best plan is usually the one with the lowest monthly premium and prescription costs, plain and simple. The third factor major factor that comes into play is the deductible.

The Deductible Question

To get the full picture on costs, one must take into account whether the plan under consideration carries a deductible. The deductible is the amount one must pay each year for prescriptions before their Medicare Prescription Drug Plan begins to pay its share of covered drugs. Deductibles vary between Medicare drug plans. No Medicare drug plan may have a deductible more than $325 in 2013. Some Medicare drug plans do not have a deductible. While the deductible option offers attractive savings, it can, in the worst-case scenario, jeopardize a senior's access to Part D benefits. These ramifications are easily overlooked when plans are ranked solely on the basis of annual cost. A sounder approach is one that weighs cost per month alongside cost per year.

The deductible plan is slightly cheaper overall. For seniors on a fixed income, however, the two large deductible payments could be cause for concern. Failure to be able to meet the deductible would leave them stuck with the entire bill for their prescription drugs--effectively uninsured. Those with budget constraints might well prefer the non-deductible plan, with its higher total cost spread out evenly over the 12 months of the year.

Once You're Enrolled - Membership

Past the enrollment phase, availing oneself of Part D benefits is a simple matter. Monthly premiums are either deducted from a subscriber's Social Security checks or billed directly by the plan. At the pharmacy, one simply presents a plan-issued ID card and is charged a co-payment based on the drug's tier level. In the case of a deductible plan, the subscriber pays the full cost for drugs until the deductible is met. The full cost is still lower than the actual retail price, due to Part D's negotiations with the manufacturer. For seniors with lower-tier prescriptions, negotiated drug costs mean that a higher deductible plus lower premiums add up to worthwhile savings. Those with less flexible finances should proceed with caution, however, as discussed above.

Plan membership expires at the end of each calendar year. Thanks to all Part D plans' auto-enroll feature, members need do nothing to renew. Those who opt for renewal cannot be assured of receiving identical coverage, however. In fact, the ostensible convenience of auto-enroll allows plans to surreptitiously raise premiums and decrease benefits. Members should review renewal terms carefully and not hesitate to change plans if necessary. If a switch is made, it is the new plan's responsibility to cancel the old one before sending a bill.

Controlling Drug Costs

Therapeutic Interchange, or "TI" as it's called in the healthcare industry, is the process of finding medications that are similar in function to the ones you are taking. Most of the time, this is done to handle some sort of allergic reaction or side effect that is caused by taking the original drug.

However, this can be used to find lower cost medications in the same class as the medications you are taking. A popular example of this is Cestor. The retail price of Cestor can be up to $200 per month while a therapeutic alternative, the drug Simvastatin, has almost identical function to Cestor but costs only $15 or less per month.

The Donut Hole

As noted by the Kaiser Family Foundation (KFF) Medicare Prescription Drug Benefit Fact Sheet, the standard Part D benefit in 2013 has a $325 deductible and 25% coinsurance up to an initial coverage limit of $2,970 in total drug costs. Once the limit is met, this is followed by a coverage gap (also known as the “donut hole”). During the gap, enrollees are responsible for a larger share of their total drug costs than in the initial coverage period, until their total out-of-pocket spending reaches $4,750. Thereafter, enrollees pay either 5% of total drug costs or $2.65 or $6.60 for each drug.

The Patient Protection and Affordable Care Act of 2010 made some important changes to Part D – one of the most important changes is that the coverage gap will be phased out by 2020. Over two-thirds of PDPs will not offer additional gap coverage in 2013 beyond the standard benefit. Additional gap coverage, if offered, is generally limited to generic drugs only. In 2011, an estimated 3.6 million Part D enrollees reached the coverage gap, per the Department of Health and Human Services (HHS).

It is to the senior's benefit to attempt to stay on generic or lower tiered prescription drugs, and to work with their prescriber to find the least expensive medications for their conditions. This would hopefully allow seniors to stay out of the “donut hole”, although with catastrophic illnesses this may not always be possible.

Enrollees in plans with no additional gap coverage in 2013 will pay 47.5% of the total cost of brands and 79% of the total cost of generics until they reach the catastrophic coverage limit. Medicare will phase in additional subsidies for brands and generic drugs, ultimately reducing the beneficiary coinsurance rate in the gap to 25% by 2020, as explained by KFF.

Special Assistance

For seniors who have difficulty meeting the costs of Part D, a federal financial aid program called Special Assistance is available to help. Eligible seniors may receive subsidies on monthly premiums and drug costs, or have all expenses paid for them. Recipients of state Medicaid benefits are also entitled to Part D subsidies, and most nursing home residents over age 65 are fully exempt from all prescription costs.

Those who think they might qualify for Special Assistance should contact Medicare Helpline at 1-800-MEDICARE (1-800-633-4227), 24 hours a day, 7 days a week (TTY users, call: 1-877-486-2048).

Conclusion

Medicare Part D is an important program that provides essential prescription drug benefits for America’s senior citizens. Although the plan can be confusing, education is key to understanding the plan details and how to make them work best for the individual. Seniors should makes note of the deadlines required by the plans, and work one-on-one with their Medicare Advantage or PDP plan to customize their benefit.

As with any prescription drug insurance policy, utilization of generics and lower tiered drugs will add up to savings and lower the chance that the plan participant will land in the coverage gap, also known as the “donut hole”. According to AARP, each Part D plan has a formulary, or drug list, that meets these guidelines, as required by law. However, all plans are not the same. They can vary by cost or formulary (the list of covered drugs and tier levels). For those considering a Part D plan, first review the plan's formulary to make sure it will meet your prescription drug coverage needs. That can be accomplished by utilizing the Medicare Plan Finder electronic tool available on the Medicare website at Medicare.gov.

If you didn't find the answers you are looking for here, please check our Answers to Common Questions About Medicare Part D

Definition of Terms

Medicare: The federal health insurance program that provides coverage for citizens age 65 and older, as well as low-income individuals and those with physical and mental disabilities.

Part D: An arm of Medicare created to administer prescription drug benefits.

Enrollment: The process of applying for benefits, usually by filling out a form.

Therapeutic Interchange: A search-and-match function that suggests lower-cost prescription drug substitutions.

Monthly premium: The fee paid each month by Part D subscribers to maintain coverage.

ID Card: A plastic card issued to each Part D plan member as proof of eligibility for prescription benefits.

Tier Level: The number or name that designates the price category of a prescription drug.

Co-pay: A plan member's out-of-pocket cost for a prescription drug. Typically a flat fee, but sometimes a percentage of the drug's full price.

Negotiated drug cost: The amount the pharmacy bills Part D for a prescription drug.

Total drug cost: The negotiated drug cost plus any co-pay.

Deductible: The dollar amount a subscriber must pay before Part D coverage takes effect.

Donut hole or Coverage Gap: A lapse in coverage that occurs when a member's total drug cost reaches the standard limit and remains in effect up to the catastrophic coverage point.

Catastrophic coverage: The resumption of Part D benefits, following suspension of coverage at the standard limit.

Brand-name drugs: A drug produced under patent by a single pharmaceutical company and typically sold at pharmacies.

For further information please visit the official Medicare Part D Website.

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