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 in January 2005, and by most accounts has been beneficial for seniors. Prior to Part D, 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.

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 and Silverscipt. 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 November 15 to December 31 st of each year, with no way to opt out. Once the choice is made, one is stuck with it, for better or worse, until that date. Also, first-time 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 as well.

Enrolling in Part D Plans

The enrollment process involves two parts. First, the senior chooses a Part D 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 enrollment window is 90 days prior to and following one's 65th birthday. Neglecting to choose a plan during that period may mean a lifetime monthly penalty.

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. 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. The most notable exclusion is the class of anti-anxiety medications known as benzodiazepines: Valium (diazepam) and Ativan (lorazepam), to name two. Drugs used for purely cosmetic purposes, as well as ED remedies such as Viagra and Cialis, are also excluded. 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 ($310 in 2010, though the amount varies). 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 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, 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 Lipitor. The retail price of Lipitor can be up to $120 per month while its Therapeutic Alternative, the drug Simvastatin, has almost identical function to Lipitor but costs only $15 or less per month.

The Donut Hole

The most controversial feature of Part D is the benign-sounding donut hole. Also known as the coverage gap, it is an abrupt discontinuation of benefits that occurs when drug costs (the total paid by both the member and the plan) hit the $2830 mark (2010). Once this threshold is crossed, the member must bear the entire cost of his or her drugs, a heavy burden indeed. Plans that offer gap coverage charge a monthly premium approximately twice that of basic plans.

In order to escape the coverage gap, one must reach a $6440 upper limit (2010). Here catastrophic coverage takes effect, and Part D covers all but $6.30 or 5% of brand-name drugs and $2.50 or 5% of generics, whichever is greater in both cases. By this time, the senior unlucky enough to fall into the donut hole has spent over $5000.00 out of pocket.

To many seniors, news of this predicament comes as a rude shock, especially since it tends to arrive toward the end of the year, around the holidays. Part D requires participating plans to provide a monthly accounting, but these statements can get lost in the shuffle of bills, Medicare notices, and junk mail many seniors receive.

"Forewarned is forearmed" is the operative maxim when it comes to staying out of the donut hole. By switching to cheaper drugs or generics, they can avoid or postpone loss of benefits.

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 at 1-800-MEDICARE.

Conclusion

Part D is an important program that provides essential benefits for America's senior citizens. It is also rife with confusion and traps for the unwary. Congress has recognized that Part D in its current form does not reflect the respect and convenience the eldest members of our society deserve. To date, however, legislative attempts to revamp the system have failed. For now, knowledge is the key to avoiding unnecessary expense, or worse. With research and attention to detail, and the resources described above, seniors should be able to make Part D work for them.

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

About the author

Edward R. Boles, RPh. has worked as a registered pharmacist in Missouri for over 20 years. Having dispensed medications to seniors and listened to their concerns for more than two decades, he brings experience and understanding to the topic of their prescription insurance needs.

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: A lapse in coverage that occurs when a member's total drug cost reaches the standard limit of $2830 (2010) and remains in effect up to the catastrophic coverage point of $4550 (2010), also known as the coverage gap.

Catastrophic coverage: The resumption of Part D benefits at the $4550 threshold (2010), following suspension of coverage at the $2830 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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