Medicare Part D Prescription Drug CoverageUpdated October 5, 2017 Medicare
While Medicare Part B (medical insurance) includes limited prescription drug coverage, it won’t cover most of the medicines that you would get at a pharmacy. In order to get coverage for prescription drugs for most chronic conditions, such as high blood pressure, you’ll need to enroll in a prescription drug plan. This means choosing either a Medicare Part D prescription drug plan or signing up for a Medicare Advantage Plan (Part C) that includes prescription drug coverage.
Medicare Prescription Drug Plans vs. Medicare Advantage Prescription Drug Plans
Under Medicare, there two main ways that you can get prescription drug coverage:
- by adding a stand-alone Medicare Prescription Drug plan (Part D) or
- by enrolling in a Medicare Advantage Plan (Part C), such as an HMO or PPO, that offers prescription drug coverage; also known as a Medicare Advantage Prescription Drug Plan.
How Medicare Part D Prescription Drug Plans Work
In 2006, Medicare Part D went into effect and began covering the costs of some prescription drugs (both brand name and generic) for those who enrolled in the program.
Check Your Eligibility
To enroll in a plan under Medicare Part D, you must have Medicare Part A (which is hospital insurance) or Medicare Part B (which is medical insurance). The main consideration for most people looking for a Medicare Part D Prescription Drug plan is whether to enroll in a plan with low monthly premiums, but that lacks some coverage, or a more expensive, thorough plan.
There are several different times when you can enroll in a Medicare Part D Prescription Drug plan.
- You can enroll during the initial enrollment period if:
- You are newly eligible for Medicare because you turned 65.
- You are newly eligible for Medicare because you have disability and are under 65.
- You are already eligible for Medicare because of a disability and turned 65.
- If you enroll in Medicare Part B for the first time during the Part B General Enrollment Period, you can then enroll in a plan from the dates of January 1 to March 31.
- You can enroll during the Fall Open Enrollment Period from October 15 through December 7 each year, and your coverage will begin January 1st of the following year.
- You may enroll at any time if you qualify for Extra Help, which is a program that assists people with limited income and resources pay for Medicare.
What is Extra Help?
Extra Help offers help in paying for a Medicare Prescription Drug plan to those people who qualify. There are some people who automatically qualify. For example, those who:
- have both Medicare and Medicaid
- get help from Medicaid paying Medicare Part B premiums (in a Medicare Savings Program), or
- get both Medicare and Supplemental Security Income (SSI).
Other people are required to apply for help under this program. As of 2017, you might be eligible for assistance if you earn less than $18,090 per year as an individual ($24,360 for a married couple that lives together) and you have financial resources that are less than $13,820 ($27,600 for a married couple that lives together). The income limits can be higher under particular circumstances. For example, the limits are higher if you or your spouse:
- support other family members who reside with you
- have earnings from working, or
- live in Alaska or Hawaii.
Those who qualify for assistance typically get a lower Part D premium and pay less for prescription drugs.
Check Your Eligibility
In addition, many states provide State Pharmacy Assistance Programs (“SPAPs), which help with the cost of pharmaceutical drugs for low-income individuals or individuals with a disability or medical condition.
Special Enrollment Periods and 5-Star Special Enrollment Period
In some cases, you can enroll in, switch, or drop a Medicare Prescription Drug plan at other times of the year, such as when you move out of your plan’s service area or you lose other drug coverage, among other circumstances. You can also switch to a Medicare Prescription Drug plan that has a 5-star overall rating if one is available in your area from December 8 to November 30, one time.
Keep in mind that if you are part of a Medicare Advantage Plan that includes prescription drug coverage and you later enroll in a Medicare Prescription Drug plan, you’ll be disenrolled from your Medicare Advantage Plan and switched to Original Medicare.
Costs Associated with Medicare Part D
Those who do not enroll in a Medicare Prescription Drug plan when first eligible will likely pay a late enrollment penalty if they decide to enroll in a plan later, and must continue to pay the penalty for as long as they have prescription drug coverage.
The total cost of a Medicare Prescription Drug plan varies from plan to plan and the area in which you live. The actual cost that you’ll have to pay as part of a Medicare Prescription Drug plan is dependent upon:
- the monthly premium (which is in addition to the amount paid for the Part B premium) (some people with higher incomes must pay a higher premium)
- the yearly deductible, if there is one (no more than $400 in 2017)
- copayments/coinsurance (which can vary depending on the plan you choose and these are paid after meeting the deductible)
- the coverage gap (otherwise known as the “donut hole”), and
- catastrophic coverage.
The Donut Hole Explained
The donut hole (the coverage gap) is when you and your plan have paid a particular amount over the course of the year for covered drugs. It is basically a limit on the coverage. After you reach the limit, you then have to pay more out of pocket for prescription drugs until you qualify for catastrophic coverage.
In 2017, you're in the coverage gap once you and your plan have spent $3,700 on covered drugs.
How Much Prescription Drugs Cost When You Are in the Coverage Gap
Fortunately, the coverage gap is gradually narrowing as a result of healthcare reform law.
For example, in 2017, there is a 60% discount for most brand-name drugs, which means you pay 40% for brand-name drugs listed on the Part D plan’s formulary. (The manufacturer and the federal government cover the remaining 60%.) These savings are available if you purchase your prescriptions at a pharmacy or if you get them through the mail. Plus, some plans offer additional savings. There is a 49% discount for generic drugs in 2017, which means you have to cover 51% of the cost while in the donut hole. By 2020, the amount you have to pay is lowered to 25% for covered brand-name and generic drugs during the gap.
Exiting the Coverage Gap
You leave the coverage gap (donut hole) when prescription drug costs reach a certain amount ($3,700 on Medicare Prescription Drugs in 2017).
When it comes to brand-name drugs, even though you will only pay a certain percentage of the price for that drug, the full price (which includes the discount the drug company pays) counts toward the amount you need to climb out of the coverage gap (donut hole). (Medicare requires companies to offer discounts on brand-name drugs to people who have reached the coverage gap.) For generic drugs, only the amount you pay counts toward getting out of the coverage gap (donut hole).
Example. Mr. Smith has reached the coverage gap (the donut hole) in his Medicare drug plan. He wants to fill a prescription for a brand-name drug that costs $60. There is also a $2 dispensing fee in addition to this cost. Mr. Smith must pay 40% of the cost along with the dispensing fee. So, he must pay $24.80 (40% of $62).
The amount of $24.80 (Mr.Smith’s out-of-pocket costs) along with the manufacturer discount payment ($30.00) count as out-of-pocket spending for a total of $54.80 toward getting out of the coverage gap. The amount left over, $7.20, will not count as out-of-pocket spending.
Mr. Smith also needs a prescription for a generic drug filled. This particular drug costs $20 plus a $2 dispensing fee. Mr. Smith must cover 51% of the plan’s cost for the drug plus the dispensing fee--$11.22 (which is 51% of $22). This amount of $11.22 counts towards getting out of the coverage gap (donut hole).
After You Get Out of the Coverage Gap: Catastrophic Coverage Explained
To get out of the coverage gap, you have to spend a certain amount during the year. Specifically, once your out-of-pocket costs (deductible, copays, and coinsurance, plus anything you paid for drugs in the gap) reach a certain threshold ($3,700 for 2017 as noted above), catastrophic drug coverage kicks in automatically and you only pay a small coinsurance or copayment for the remainder of the year.
As mentioned earlier, the discounted amount on brand-name drugs and amounts you pay out-of-pocket count towards reaching the threshold.
How Part C Plans Work
Medicare Part C (also known as Medicare Advantage Plans) are provided by private insurance companies and are Medicare approved. (A Medicare Advantage Plan is an alternative to Original Medicare, which is, Parts A and B.) If you choose to enroll in a Medicare Advantage Plan, you will probably have prescription drug coverage as part of the plan.
Medicare Advantage plans must cover the same categories of prescription drugs as those offered by Medicare Part D Prescription Drug plans, but these plans offer various combinations of coverage and cost sharing when it comes to prescription drugs. This means that the different plans may vary in the prescription drugs that are covered, how much the plans cost, and which pharmacies you can go to.
In cases where the particular Medicare Advantage Plan you select doesn’t provide prescription drug coverage, you may be able to sign up for a Medicare Part D Prescription Drug plan.