The Ultimate Guide to Medicare Part D

Prescription Drug Coverage

Rx Bottles and pills of Medicare Part DMedicare Part D prescription drug benefit helps beneficiaries of Medicare pay for outpatient prescription drugs bought at certain centers, including retail locations and pharmacies. This benefit has been available since January 1, 2006 and can help significantly reduce prescription drug costs. Here, we consolidate everything you need to know into a single, easy-to-understand guide.

Where to Get Part D

Prescription drug coverage is available to every Medicare beneficiary. But, if you don’t choose a Part D plan when you are eligible, and you don’t join a Part C plan (Medicare Advantage), you could pay a Late Enrollment Penalty if you try to join later. Exceptions exist if you have creditable drug coverage or if you receive Extra Help.

There are two quick ways to get prescription drug coverage.

Prescription Drug Coverage

These plans add prescription drug coverage to your Original Medicare. They are offered by insurance companies and other Medicare-approved private companies. The cost of each plan depends on the provider and your location. The Open Enrollment Period (OEP) takes place from October 15 to December 7 each year. During this period, you can get a prescription drug plan or a Part C plan. At present, there are an estimated 41 million people with one of these two options; approximately 60 percent opt for the traditional Part D plan.

If you are about to turn 65 or otherwise become eligible for Medicare outside of the OEP, you will have seven months to enroll in the following year’s plan in order to avoid a Late Enrollment Penalty. Those seven months consist of:

  • the three months before you become eligible,
  • the month of eligibility, and
  • the three months after you become eligible.

Coverage begins on the first day of your birthday month if you enroll in the three months before your birthday. If you join during or after your birthday month, your coverage begins on the first day of the month after you enroll.

Here is an example for someone born on August 22.

  • If you join in May, June, or July, your Medicare Part D coverage begins on August 1.
  • If you join in August, your coverage starts on September 1.
  • If you join in September, your coverage starts on October 1.
  • You can join up to and including the month of November.
Here are the important dates for enrolling in a Part D plan in a given year:
  • October 1: Marketing activities begin for next year’s plan so you can begin the process of evaluating the Part D options.
  • October 15 – December 7: This is the open Enrollment Period.
  • January 1: Your new Part D plan becomes active.
  • January 1 – February 14: This is the Disenrollment Period where Part C plan members can either return to Original Medicare or switch to a Part D plan without penalty.
  • January 1 – December 31: You can enroll in any Part D plan during the year if you have just turned 65.

Part C Plan

Also known as Medicare Advantage, Part C plans offer prescription drug coverage. These plans (which can be HMO or PPO) provide you with all your Part A, B, and D coverage. You must have Medicare Parts A and B in order to enroll in a Medicare Advantage plan.

When you have chosen the right plan for your needs, you can complete an enrollment form, call Medicare Solutions. When you join, you’ll give your Medicare number and the dates when your Part A and Part B coverage started. This information is on your Medicare Card. Feel free to use this tool to search for the best plan in your area.

Late Enrollment Penalty

If you go 63 consecutive days without prescription drug coverage after your Initial Enrollment Period is over (and don’t have creditable drug coverage), you may face a penalty should you choose to enroll later. The penalty will depend on the length of time you went without the coverage.

At present, Medicare multiplies 1 percent of a national base beneficiary premium figure ($34.10 in 2016 but rising to $35.63 in 2017) by the number of months you went without coverage. This penalty is rounded to the nearest $0.10 and added to your monthly Part D premium.

For example, if your Initial Enrollment Period ended on February 22, 2013 but you didn’t join a plan until October 14, 2014 (which may mean your effective coverage began on November 1), you would be 19 months late. This would lead to the following penalty (based on 2017 figures):

  • $0.3563 x 19 = $6.77, which would round up to $6.80

As a result, you would have to pay an extra $6.80 each month on top of your Part D premium.

Cost of Coverage

Most Part D plans include a monthly fee that will vary according to the plan you choose and the state you live in. The charges can be complex, and you’re likely to pay different prices for drugs depending on their “Tier” (more on that later).

For a point of reference, you could get a plan in Alabama for as little as $30 a month, but the exact same plan from the same provider may cost up to $60 a month in California. This fee is in addition to your Part B monthly premium ($121.80 in 2016 with a possible increase forecast for 2017).

The average premium for 2017 will be $42.17 per month, which is a 9 percent increase on the 2016 figure. Of the top 10 most popular plans, the Humana Wal-Mart Rx plan will be the cheapest on average, at $16.81 per month. The most expensive is the AARP MedicareRx Preferred Plan, which will cost an average of $71.66 a month. To find out if these are available in your area, contact a Medicare Solutions advisor.

The next cost is your annual deductible. The annual deductible is the amount you pay for your prescriptions before Part D coverage starts to pay its share of your covered drugs. Although deductibles can vary according to the plan you choose, no plan can charge more than $360 a year in 2016. This will rise to $400 per year in 2017.

Co-pay/Coinsurance

This is what you pay for each prescription after the deductible. A copayment is the set amount you pay for all drugs in a specific Tier. Different tiers correspond to different types of drugs, and how much your insurance will cover on each type. Typically, you’ll pay less for a generic drug than for a brand one. For example, a Tier 1 generic drug might have a $3 co-pay charge; this simply means you pay $3 towards the cost of every individual prescription.

Coinsurance works similarly, but instead of paying a fixed fee, you’ll pay a percentage of the drug’s cost. For instance, you may pay 25 percent coinsurance on a $100 drug; this means you would pay $25 towards the cost while your plan covers the rest.

The Coverage Gap

Sometimes nicknamed the “donut hole,” the Medicare coverage gap represents a temporary limit on what your plan will pay for prescription drugs. In order to reach the coverage gap, you’ll need to spend a certain amount on drugs (out-of-pocket) in a calendar year. In 2016, you will only reach the coverage gap after you’ve spent $3,310 on covered drugs. This will rise to $3,700 in 2017.

Once you’re in the coverage gap, you will only pay 45 percent of the total price of the drugs in 2016; this is because there is a 50 percent discount on brand name drugs and the plan pays an additional 5 percent of the cost. In 2017, your plan will pay 10 percent of the cost, so you’ll only pay 40 percent of the total cost. For generic drugs, you’ll pay 51 percent of the total cost.

Following is an example using 2017 figures on brand name drugs:

After reaching the coverage gap, you fill a prescription for a brand name drug that costs $150 plus a $3 dispensing fee, for a total cost of $153. You will only pay 40 percent of the total cost, which is $61.20 (0.4 x 153). This $61.20 plus the $75 manufacturer discount will count as your out-of-pocket spending, totaling $136.20. This helps you get closer to leaving the coverage gap.

Catastrophic Coverage

The out-of-pocket spending threshold for policyholders in 2016 is $4,850, and it rises to $4,950 for 2017. Once you exceed this figure, you automatically enter Catastrophic Coverage, which reduces the amount you have to pay out-of-pocket.

In 2016, you only have to pay 5 percent of the cost of the drugs or a set fee of $7.40 per brand name prescription and $2.95 per generic prescription, whichever figure is greater. In 2017, the 5 percent cost remains the same, but the set fee will rise to $8.25 for brand name drugs and $3.30 for generic drugs.

Again, it is important to remember that this coverage only begins after the policyholder has spent the above amount – not their plan.

Prescription Drugs Covered by Part D

Each individual Part D plan has its own drug list, also known as a Formulary. It is common for these plans to classify drugs by Tiers. Drugs in lower tiers cost less than drugs found in higher tiers. Many medications in higher tiers are specialty medications.

Your plan may alter its Formulary during the year. If these changes include a drug you are taking, your plan must provide you with written notice at least 60 days before the change takes place. Alternatively, it can give you a 60-day supply under old rules when you request a refill. There are usually five drug Tiers, although some plans may only supply four.

  • Tier 1: Preferred Generic Drugs
  • Tier 2: Generic Drugs
  • Tier 3: Preferred Brand Drugs
  • Tier 4: Non-preferred Brand Drugs
  • Tier 5: Specialty Drugs

Under Medicare rules, providers may create their own formularies and don’t have to cover every Part D drug. However, they may not create a “discriminatory” formulary that excludes specific drugs in order to discourage certain beneficiaries from enrolling.

Formularies must follow the U.S. Pharmacopeia model formulary, include at least two drugs in 148 categories, and cover “substantially all” drugs in these protected classes of drug:

  • HIV
  • AIDS
  • Antidepressant
  • Antipsychotic
  • Anticancer
  • Immunosuppressant
  • Anticonvulsant

Drugs Excluded

Some drugs are optional under Medicaid, and excluded from Part D. These include (but are not limited to):

  • Fertility Drugs
  • Over-the-counter Drugs (even when prescribed by a physician)
  • Erectile Dysfunction Drugs (unless deemed medically necessary and FDA approved)
  • Hair Growth and Other Cosmetic Drugs
  • Weight Loss/Gain Drugs
  • Vitamins and Minerals (except Niacin products, fluoride preparations, prenatal vitamins, and Vitamin D analogs deemed medically necessary)

Plan Availability

On average, a Medicare beneficiary will have 22 prescription drug plans to choose from in 2017. In 2016, beneficiaries had on average a choice of 16 Medicare Advantage plans. In total, there will be 776 prescription drug plans on offer across the country in 2017, which is well down from the 2016 figure of 886.

If you have an idea of the Part D prescription drug plan you’re interested in, contact a Medicare Solutions advisor or use this plan finder to search for the best plan in your area.