Many of the most commonly asked questions we receive from seniors who are 65 or older focus on Medicare Part D. This is the part of Medicare that pertains to prescription drug coverage.
Prescriptions can add up. Even commonly used prescriptions for issues like high blood pressure and diabetes can be costly. Without additional prescription drug coverage to help absorb the costs, many seniors simply choose not to fill the prescriptions that are written by their doctors. Medicare Part D can help with these costs, and that’s why we get so many questions about it. If you’re new to Medicare or you’re checking out your options for the first time, then you should know that Part D is available to every senior who’s covered by Medicare insurance.
Enacted in 2006 as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Part D is a private plan that’s offered by an insurance provider and approved by Medicare. You can sign up for Part D when you’re first eligible for Medicare. Enrolling in a prescription drug plan is optional, but you may incur penalty fees if you wait to sign up outside of your initial enrollment period.
Every Part D plan is different in both coverage and cost. Individuals with incomes below a particular threshold are eligible for assistance with premiums and drug costs. Medicare Part D isn’t perfect. There’s a situation known as the “donut hole” that allows seniors to get stuck in a coverage gap between the maximum allowable coverage and the maximum out-of-pocket spending threshold. While you’re in the donut hole, drugs are sold at retail cost
Introduction to Medicare Part D
Medicare was created in 1965 to help seniors gain access to affordable health care. Original Medicare (Parts A and B) is administered by the U.S. government. This program is available to everyone aged 65 or older as well as certain younger individuals who receive Social Security disability benefits.
Medicare is divided into four parts, identified by the letters A through D. If you don’t enroll in Part D when you first become eligible, and you don’t have prescription drug coverage under another creditable plan, a late enrollment penalty may be assessed. Initial eligibility for those aged 65 or older without a disability lasts for seven months: three months before you turn 65, the month you turn 65 and the 3-month period after the month you turn 65.
Medicare has to approve insurers that offer Part D plans, but you’ll enroll in a Part D drug plan directly with the provider. Specific covered drugs, copayments and monthly premiums vary by plan type and insurer. However, Medicare does set a cap on certain costs, which we’ll discuss below.
You don’t have to submit a new application for Medicare each year, but beneficiaries are asked to review their Part D coverage annually since needs can change. If you want to change insurance companies or plans, you can do so during the annual Open Enrollment Period (OEP), which lasts from October 15 through December 7. This period also applies to people who are securing Part D coverage for the first time outside of their initial enrollment period.
Should I Enroll in Medicare Part D?
There are three factors to consider when deciding if you need Medicare’s drug coverage:
- Your current level of coverage
- Your monthly income
- Your ability to pay for prescriptions on your own
Medicare’s basic drug benefit uses the term “creditable” when looking at other plans. Creditable plans have benefits that are at least as good as or better than Medicare’s basic drug benefit. If you currently have coverage through your employer or insurance company, then they’ll send a letter each year advising of the plan’s status as creditable. If the coverage is not creditable, you can enroll in Part D coverage without a penalty. If you have coverage outside of Medicare, always be sure that taking Medicare coverage will not negate your benefits under your private plan.
Some plans are not compatible with Part D. Joining a Part D plan can cause you to lose your benefits and you may not be able to get them back. Taking a look at your current prescriptions and their costs and comparing them to the benefits offered under other plans can also be helpful. Be sure to compare both the drug and the dosage, since these vary by plan, and include the premium when you’re comparing overall prices.
Medicare Part D – Paying the premium
Most plans charge a monthly fee, which varies by coverage. This is in addition to your Part B premium. Those covered by a Medicare Advantage Plan, or Part C, may have coverage in that plan. Individuals with an income of $17,655 or less , or couples with less than $23,895 in 2015 may qualify for “Extra Help.” This program provides assistance to people with limited income and offers significant savings to those who qualify.
Individuals on Medicaid who reside in a skilled nursing facility or are receiving Supplemental Security Income (SSI) automatically qualify for Extra Care. Other individuals can apply for assistance and receive some assistance in the form of fixed copays for both generic and brand name prescriptions. In the event you do not qualify for Extra Help, you may qualify for aid under your state health insurance assistance program (SHIP). Or, you can apply for regular Medicare Part D coverage.
Medicare donut hole
The biggest downside to Part D coverage is the gap in coverage commonly called the Medicare “donut hole.” This is the gap between initial payments under Part D and when benefits resume. If you fall into the gap, then you’re responsible for the full cost of prescription drugs until you reach the other side. Extra Help and SHIP recipients, along with people who qualify for other forms of assistance, don’t have to worry about these extra costs since the aid programs cover them. Here’s how the donut hole works: Each year, there’s a coverage threshold in Part D plans. Once you reach this threshold, your plan (Medicare Part D) stops paying for your drugs. In 2016, the coverage threshold is $3,310. In 2017, the coverage limit is expected to increase to $3,700. The amount rises each year.
If you don’t spend more than the threshold on prescriptions for the year, then you won’t fall into the gap. The donut hole typically affects people with a lot of medications – or pricey ones.
You’re stuck in the donut hole until you reach the out-of-pocket (OOP) spending limit. This limit ensures that seniors won’t have to pay higher prices for drugs forever. The “catastrophic coverage” provision kicks in once you reach the OOP limit. In 2016, the OOP limit is $4,850. Once you’ve hit that amount, you’re only responsible for a small coinsurance payment for the rest of the plan year. The catastrophic limit will increase to $4,950 in 2017.
Being in the donut hole can be especially frustrating and expensive for seniors who need regular medication. One of the goals of the Affordable Care Act is to eliminate this gap in coverage by 2020. Until then, there’s cost assistance in the form of subsidies to help offset the price of medication while you’re in the gap. In 2016, seniors pay 45 percent of the cost of brand name drugs and 58 percent of the cost of generics while they’re in the donut hole. Next year, those discounts will increase. Generic discounts jump to 49 percent; brand name drugs get a 50 percent discount in 2017.
Your yearly deductible, copayments and coinsurance count toward getting out of the donut hole, as do the amount that you spend while you’re in the coverage gap for generics and the discount that you get on brand name drugs. Your monthly premium, the pharmacy dispensing fee and what you pay for non-covered drugs do not count toward that out-of-pocket limit on spending
Medicare Part D – Choosing a plan
Choosing a plan can be daunting, but it’s important to make the right choice. That’s because the plan you choose is the one you will be staying with for the entire calendar year. It’s also wise to review plans during the open enrollment period each year, since your needs may change from year to year. Here are some tips to make the process of choosing the right plan for you easier and less stressful:
- Start by determining how much you’ll pay for prescriptions. To do this, you’ll need to know the dosage and cost of each prescription that you take. Drug costs determine out-of-pocket spending, which can vary widely among different plans. Medicare offers a plan finder tool on its website. You can enter your zip code and prescription data, and the tool will generate a list of plans. Using this tool will help you see the probable out-of-pocket costs as well as which prescriptions might be covered. You can also see which pharmacies are in the network.
- Companies that provide Part D coverage change their plans every year. These changes can affect the premium, out-of-pocket costs, copays and covered drugs. Some plans offer donut hole coverage for a plan year, then remove it the next. The insurer is required to provide an “Annual Notice of Change” by September 30 outlining the changes to your plan so that you have adequate time to look for a new plan.
- There’s always the chance that you may not find a plan that covers all of your prescriptions, particularly those that are new or extremely expensive. Speak to your doctor to find out if there are any alternatives that can work for you. If not, your doctor can request an exception in writing to appeal a denial. Companies may make an exception for specific medical conditions.
Part D coverage is voluntary. In order to make the best decision, you need to take into consideration your health, prescriptions, income and budget. Low income should not be a deterrent. There are programs in place on both the state and federal level to assist seniors in paying for Part D coverage. It can be a time-consuming process, but signing up for Part D coverage could provide you with significant benefits while allowing you to maintain a healthier lifestyle.
Medicare Part D enrollment period restrictions
Like other types of insurance, Medicare doesn’t allow members to enroll whenever they want. Instead, there are set enrollment periods each year. The following table outlines these enrollment periods for Medicare Part D:
|During this period…||You can…|
|Open Enrollment: The annual sign-up period that runs from October 15 through December 7.||Make changes to an existing Part D plan, sign up for a new Part D plan if you don’t have one or drop a Part D plan altogether.|
|Special Enrollment: Varies.||If you move, lose creditable coverage from work or meet some other qualifying life event, you have the option to sign up for or change your Part D coverage. Check with Medicare and your health plan administrator for specifics.|
|Initial Enrollment: The 7-month period that includes the three months before you turn 65, the month you turn 65 and the three months after your birthday month.
Special note: If you receive disability benefits, then your initial enrollment period for Part D starts three months before you get your 25th month of disability benefits and lasts until three months after that 25th month.
|Enroll in a Part D plan for the first time.|
Medicare offers a list of circumstances that qualify for special enrollment periods. For instance, those who were living abroad but have come back to the U.S. can enroll in a Part D drug plan when they return. The enrollment period for this event lasts for two full months starting from the month that you move back. In general, however, you’re most likely to enroll during your initial eligibility or the annual open enrollment period.
Coverage Limitations for Prescription Drugs
There may be limitations on what your plan covers. Each plan can offer different coverage or require participants to complete certain actions before getting approval. For example, not all plans offer full coverage for high-cost drugs. And some may require participants to get prior approval for them or to try a more economical drug first. The plan may limit how much of each medication is dispensed at one time, such as a 30-day or 90-day supply.
Vaccines deemed medically necessary, such as the shingles vaccine or others intended to prevent illness, are normally covered under a Medicare Part D plan. Drugs received in an outpatient setting or at a physician’s office may be covered. However, recipients may have to meet certain circumstances.
What does Medicare Part D coverage cost?
There are various costs associated with a Medicare Part D drug plan just as there are costs with other insurance plans. Along with a monthly premium, you’ll probably pay different copayments and coinsurance rates depending on your plan. Copayments are fixed amounts, such as $10 per prescription at a set tier. Coinsurance is a set percentage, which can vary based on drug type or brand. Some plans also have an annual deductible. In 2016, the maximum allowable deductible for a Part D plan is $360. This is expected to increase to $400 in 2017.
There’s a limit to the amount of coverage that your plan offers, and this is the coverage limit we discussed earlier. Coinsurance, copayments, what your insurer pays out and the annual deductible count toward the coverage threshold. In 2016, that threshold was $3,310. Once you hit that barrier, you’re stuck in the donut hole until you reach the other side, which is the out-of-pocking spending limit. That OOP limit in 2016 is $4,850. Next year, the coverage limit may jump to $3,700 while the OOP limit increases to $4,950.
While you’re in the donut hole, you’ll pay a portion of the costs of prescriptions as discussed in an earlier section. The discount is 55 percent for brand-name drugs and 45 percent for generics in 2016. Next year, generics get a 49 percent discount while brand-name drugs get a 60 percent discount. After you reach the out-of-pocket maximum, you’ll only be responsible for a small coinsurance rate on remaining drugs for the year because your catastrophic coverage provision will kick in.
Debunking myths of Medicare Part D
Since the enactment of the Affordable Care Act, there have been rumors surrounding Medicare. You may have heard that Medicare isn’t available or that you have to buy extra coverage to meet the new law’s health insurance mandate. These statements aren’t true. Some of the worst myths surround prescription drug coverage.
Studies also show that many Americans don’t know what Medicare does or how it works. According to the Kaiser Family Foundation, there are over 55 million Medicare beneficiaries as of 2015, a number that includes senior citizens and people with certain disabilities. The changes to Medicare have given these beneficiaries more preventive care services, annual wellness checkups and tests for cancer in addition to prescription drug coverage for specialty medications. Many people think that Medicare is Obamacare, but it’s actually a healthcare program that started in 1965.
Debunking these myths about Medicare and prescription drug coverage is important, as it helps get people the coverage that they need. Misinformation and political posturing does nothing but hurt the people for whom Medicare was created. The following myths and facts about Medicare Part D and the ACA should provide you with a better understanding of the program.
1. Medicare members pay more for medications because of Obamacare. Under the ACA, Medicare members with a higher income – those who earn more than $85,000 per person or $170,000 per married couple – will pay more for Part D coverage. However, only 5 percent of beneficiaries fall into this category. Most seniors on Medicare will see their costs decrease since the ACA is closing the donut hole. The donut hole (or coverage gap) used to make it so that Medicare members had to pay 100 percent of their prescription drug costs up to a certain amount. Now that gap will close by 2020 because of Obamacare.
2. Medicare premiums are rising because of prescription drugs. This is partially true, but premiums are not rising just because of prescription drugs alone. Medicare premiums are set by a complicated formula that existed well before Obamacare. Premiums are also rising annually, not monthly. Healthcare costs are going up each year, which means that premiums must go up as well. Again, higher income enrollees will see the brunt of these cost increases. But these increases were already included as part of Medicare before the ACA. They’ve been in effect since 2007.
3. Dispensed medications in Medicare are wasted. Many studies have shown this to be a false statement. Less than 1 percent of all medications dispensed to Medicare members has been wasted. There were a few myths surrounding the idea that Medicare beneficiaries were receiving prescriptions through mail service pharmacies and abusing the system. However, studies found that mail service pharmacies were typically used only after a patient had already been stabilized on 30-day medications prescribed at local drug stores.In addition, waste because of “auto-refill” services accounted for only 0.02 percent of medications given out under Medicare Part D. In fact, it was found that of the small percentage of waste, most of the drug waste came from drugstore prescriptions. Studies conducted by Visante and prepared for the Pharmaceutical Care Management Association showed that there was little evidence of medication waste. Waste only occurred when patients stopped taking medications before using an entire supply of a prescription.
This may be because of recovery or a discontinued therapy, or it could also be that the patient switched to a different type of drug. A 2011 study on patients taking cholesterol-reducing drugs found that waste also occurred in less than 2.5 percent of statin prescriptions across various pharmaceutical channels. When the 90-day prescriptions were compared, waste decreased for prescriptions obtained through mail service drugstores but increased for retail drugstores. Further studies revealed that after looking at 14 different therapeutic drug categories in 3 million patients, there was even less waste. On a yearly basis, 90-day prescriptions related to only two days of wasted medication supplies.
4. Medicare members use government money to buy illegal prescription drugs. This is completely false. According to the MedPAC Data Book, Medicare Part D pays for 1.4 billion prescriptions every year. Mail service prescriptions only account for 8 percent of unadjusted prescriptions. When adjusted for their larger, average script sizes, mail service prescriptions combined provide 19 percent of size-adjusted prescriptions, or roughly 269 million prescriptions each year.
Retail pharmacies accounted for 79 percent of total unadjusted prescriptions, including 167 million prescriptions for 90 days and 826 million for 30 days. The remaining prescriptions for the Medicare Part D program come from long-term pharmacies, physician offices, specialty pharmacies, home infusion, durable medical equipment, nuclear pharmacies, federal health centers, rural health clinics, Indian Health Service and hospitals.
5. The cost of enrolling in Medicare Advantage with prescription drug coverage is less than the cost of a Medicare supplement policy, like Medigap. In some cases, this statement is true. Because Medigap and Medicare Advantage are managed by private companies, there aren’t any across-the-board guarantees that one plan will be better or more cost-effective than another. What you pay for insurance depends on what you need from the plan.
You should always look at costs very carefully for any Medicare plan that is being offered through a private insurance carrier. In previous years, it’s been shown that Medicare Advantage HMO and PPO policies had lower coinsurance and premium costs than comparable Medigap policies that included Part D coverage. But many plans have changed since the Affordable Care Act was adopted. There are also additional costs with Medicare Advantage Plans.
You may pay more for skilled nursing facilities, home healthcare and hospital care, even if you receive cheaper prescription drug coverage. The best way to understand the costs of Part D coverage is to compare Medicare Advantage HMO and PPO plans directly with Medigap policies. You may be able to supplement your original Medicare coverage with simple prescription drug coverage.
These myths about Part D only serve as a reminder to research health insurance plans and look for the coverage that you need right now as well as what you might need in the foreseeable future. Many of these myths are based on actual facts. But they have been twisted in order to persuade people not to purchase prescription drug coverage. It’s a mistake not to have Part D coverage when you need it.
Common differences between HMO, PPO and Medigap drug plans
If you have original Medicare but don’t have prescription drug coverage, then you’ll have to purchase supplemental insurance through Medigap in order to get Part D or prescription drug coverage. The supplemental insurance pays for part of the out-of-pocket costs associated with your Medicare bills. Medigap only works with original Medicare. That means if you have Medicare Advantage, you should find a policy that includes prescription drug coverage. Many people are able to save money by purchasing Medicare Advantage policies that include prescription drug coverage, without the need for supplemental insurance.
All services from original Medicare and prescription drug coverage are included in one plan, which is typically either an HMO or PPO. Medigap policies usually only cover certain services that you need that aren’t in Part A or Part B. For instance, if you need a prescription for a painkiller or therapeutic drug, you may have to purchase a Medigap policy in order to get it. With Medicare Advantage, access to these drugs may already be included. Medigap and Medicare Advantage Plans are sold by private health insurance companies, which means that you’ll often see a Medigap policy right under a Medicare Advantage plan.
Check to make sure that you’re purchasing the right insurance. You could wind up changing your entire healthcare plan just by purchasing a Medigap policy when you really wanted Medicare Part C. One of the most significant differences between Medigap drug coverage and Medicare Advantage drug coverage is that Medigap will cover all of your out-of-pocket costs. Medigap plans also allow you to visit certain doctors that may not be allowed in a HMO under Medicare Advantage.
However, Medicare Advantage will combine the costs of your original Medicare and add prescription drug coverage, making it simpler to pay your premium. You also only have one insurance card. In addition, Medicare Advantage plans are sold with out-of-pocket spending limits that restrict how much you’ll have to spend on your medical care each year.
Do I have to sign up for Medicare Part D?
It’s not required for you to have Part D coverage. That said, if you currently need or anticipate needing to spend a significant amount of money on drugs in the future, you should really consider enrolling. The Medicare prescription drug benefit may be a good decision for you. Think about your current drug coverage, your income and how much you currently spend on prescription drugs before you choose a drug prescription plan.
Some states have a pharmaceutical assistance program (SPAP) that helps with the costs of Part D coverage as well. However, you will already have to be enrolled in Part D coverage to get this help. If your income is less than $1,471 a month as an individual or $1,991 for couples, then you can enroll in Medicare Part D and get a plan that is nearly free. The government pays for most of the drug costs if you qualify for Extra Help based on your income. Also, if you sign up for a prescription drug plan and qualify for Extra Help, then you don’t have to pay a premium penalty.
To make the best decision on what you should do, you can make a list of your prescriptions, dosages and what you currently pay each month. Compare this list to what you would pay if you enrolled in another plan by using comparison tools, available on the Medicare website. If you have high drug costs now but have a lower income, then you may save a lot of money through the Medicare program. Choosing a Medicare Part D plan is a highly personal decision. There are significant advantages for people who need a lot of prescriptions or those who need costly medication. Weigh the pros and cons, paying particular attention to your income and your prescription needs for the long term, before signing up for Medicare Part D.