Choosing which Medicare plan works best for you can be overwhelming. If you are one of many seniors who also takes prescription drugs, there are added considerations. Two different options exist for prescription drug coverage in Medicare: enrolling in a Medicare Part D plan or choosing a Medicare Advantage plan that includes prescription drug coverage. Which one is better? The answer depends on your specific needs.
Medicare Part D
Part D is a standalone prescription drug coverage plan offered by the government that beneficiaries can purchase in addition to original Medicare (Parts A and B). A Part D plan includes a deductible, which varies by plan but does have a cap put in place by the government. In 2017, the maximum Part D deductible is $400. It increases to $405 next year. Once you meet the deductible, you’ll pay 25 percent for the cost of your prescriptions while the plan pays for the remainder until you meet your plan’s coverage limit.
The initial coverage limit is $3,700 in 2017 and will increase to $3,750 in 2018. Once you hit the coverage limit, you’ll be stuck in a situation known as the “donut hole,” or coverage gap, a scenario that the Affordable Care Act has been working on addressing by giving seniors additional discounts while they’re in the gap.
Before the ACA, you may have had to cover the full retail cost of your medications from the moment you hit the coverage limit until you reach the out-of-pocket maximum. Now, you have discounts available. For generics, you’ll pay 51 percent of the cost in 2017. Brand-name drugs get a 60 percent discount. Eventually, by 2020, the discounts will increase to 75 percent for both types, which effectively closes the gap since 25 percent is all you’re normally paying under Part D anyway.
The donut hole lasts until you reach the out-of-pocket maximum, which is also referred to as the catastrophic threshold. In 2017, you have to spend $4,950 before catastrophic coverage kicks in. That number increases to $5,000 next year. Most of what you spend on drugs counts toward the total, so for people who need a lot of medication, it’s not hard to reach this limit.
Medicare Advantage (MA) is also known as Medicare Part C, and while most Medicare beneficiaries still choose original Medicare, the number of Medicare Advantage enrollees is growing. In 2016, nearly a third of Medicare enrollees chose MA plans. Advantage plans are offered by private insurance companies who have entered into contracts with the federal government, usually for a fixed monetary amount per subscriber.
Advantage plans come with their own separate premium costs, but benefits can be better for a lot of people because Advantage plans are more comprehensive than original plans. Many MA plans provide prescription drug coverage, usually requiring beneficiaries to pay a set copay. Advantage plans also come with out-of-pocket maximums, which are capped each year. In 2017, the maximum out-of-pocket cap is $6,700, but most plans do not charge the maximum. Co-pays do not count toward meeting this threshold.
What are the biggest differences?
There are several differences between Medicare Part D and a Medicare Advantage. No one plan is necessarily better than the other, as each have their own unique advantages and disadvantages. Here are a few of the key differences for comparison’s sake:
|Medicare Part D||Medicare Advantage with Rx Coverage|
|Administered by the federal government, so there are standardized options and coverage||Offered by private insurers, which makes them more variable in what they can offer|
|Beneficiaries pay a set percentage for their coverage (in and outside of the donut hole)||Beneficiaries typically pay a copay (dollar amount) instead of a percentage|
|Out-of-pocket threshold is capped by the government; once you reach it, you’ll pay 5% of your drug coverage||Out-of-pocket maximum is capped by the government; once you reach it, the MA plan will pay for the rest of covered drugs|
Who benefits from each?
There’s a reason that more people are choosing Medicare Advantage plans over Part D coverage, and that’s primarily because MA plans include more comprehensive coverage. Some plans, for instance, even cover vision and dental, which traditional Medicare does not. But MA plans aren’t necessary for everyone, and you may be fine with original Medicare and a Part D add-on. The best way to determine which plan will cover more and cost you less is to make a comprehensive list of your prescription needs as well as their monthly costs. Then, break down each plan by asking a few important questions, such as:
- How many prescriptions am I likely to need during each plan year? Under Part D, you’ll have to cover 25 percent of the costs, which can add up quickly if you need a lot of medication.
- Can you afford the copays, coinsurance or deductibles involved? Tally up your monthly budget, and choose a plan that you can comfortably afford. Keep in mind that you can take advantage of Extra Help if you meet the income requirements.
- Are you likely to hit the coverage gap? Not everyone falls into the donut hole, especially those who don’t need many medications. If you aren’t likely to spend more than the coverage limit on drugs ($3,700 in 2017), then don’t worry about how much assistance your plan pays while you’re in the gap.
- How expensive are your monthly medications? An MA plan could save you money if your drugs are particularly expensive, since you would only have to pay a set dollar amount for certain medications instead of a percentage.
- Which plan has a formulary that covers most if not all of your current prescriptions? If the plan you are leaning towards does not cover one of your medications, is it possible to switch to a generic or comparable drug? If not, how much extra is a certain medication going to cost you with each plan?
Those with very expensive drugs may benefit from an Advantage plan, depending on the cost of co-pays. While it’s harder to reach the out-of-pocket maximum with MA coverage, for those who need a lot of expensive drugs, the coverage could be much more cost-effective. On the other hand, if your prescription drug costs are relatively low, a traditional Part D plan may be cheaper. Paying 25% of a $15 prescription is only $3.75 after you meet the plan’s deductible. With low prescription costs, you may never reach the donut hole.
Choosing between Medicare Part D and a Medicare Advantage plan with drug coverage comes down to cost and long-term benefit. Evaluate your medication needs, talk to your doctor and make a list of questions to ask a qualified Medicare specialist. If you end up needing more or less coverage later, you can always switch during an enrollment period. Just make sure to do your research ahead of time to cut down on your monthly prescription costs.