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Prescription Drug Plans (Medicare Part D)

Prescription Drug Plan Basics

Medicare Parts A & B (Original Medicare) does not cover the cost of outpatient prescription drugs. To help fill this void, Medicare Part D, also known as Prescription Drug Plans, was created on January 1, 2006. The program is designed to help Medicare beneficiaries pay for the cost of outpatient prescription drugs.

What Part D covers

Medicare Part D is made up of many different kinds of drug plans that are provided by private companies. Each of these various plans covers its own list of drugs which is also called a formulary. The cost of a particular drug plan depends on whether or not you use a pharmacy in your plan’s network, and which types of drugs are included in the plan.

How to Enroll

There are two primary ways you can receive prescription drug coverage—with Original Medicare and Medicare Part D or a Medicare Advantage plan that includes prescription drug coverage. Because those are the only two options, it is generally not possible to be enrolled in a Prescription Drug Plan and a Medicare Advantage plan simultaneously. It’s important to note that prescription drug coverage is not mandatory; however, you may be assessed a penalty if you enroll at a later time. If you wait 63 or more days after your Initial Enrollment Period is over, it’s possible you may be assessed a late enrollment penalty; therefore, it is recommended that you sign up for Medicare Part D as soon as you become eligible.

When to Enroll

There are specific times that you are able to enroll in a Prescription Drug Plan:

    • Initial Enrollment Period for Part D – This begins three months before you turn 65 and ends four months after you turn 65—for a total of seven months. If you are eligible for Medicare through disability, this Initial Enrollment Period starts three months before your 25th month of disability benefits from Social Security or the Railroad Retirement Board and also lasts for a period of seven months.
    • Annual Election Period – Each year this runs from October 15th to December 7th. During this time, you can enroll in a plan for the first time, switch Medicare plans, or dis-enroll from a current plan that you may have.
    • Special Election Period – There are some circumstances that allow for enrollment outside the standard enrollment periods—examples of this would be moving outside your current plan’s service area, moving into a nursing home, or losing Medicaid eligibility.
    • Medicare Advantage Disenrollment Period – this is a period of time when you can disenroll from a Medicare Advantage plan and return to Original Medicare. This period occurs every year from January 1 to February 14.

While it is possible to enroll in Medicare Part D even outside of the timeframes above, you will likely have to pay a late-enrollment penalty if you went without creditable coverage for too long, so it’s important to plan ahead.

Medicare Part D Costs

Medicare Part D plans typically charge a monthly premium. While the total premium varies by plan, the 2020 Part D base beneficiary premium is $32.74 according to Centers for Medicare & Medicaid Services. Most people, however, opt for additional coverage, and the overall average Part D premium is $47.59. That being said, there are significant variations in the actual premiums people pay for Medicare Part D since there are income-related surcharges and subsidies based on your income level. This is an example of the most basic model for Medicare Part D costs:

Step 1: Deductible

As with all deductibles, you are responsible for this initial fee, which varies and is set by the specific plan. The government sets a maximum deductible for Medicare plans that cover prescription drugs, which may change each year. Some plans may not have a deductible.

Step 2: Co-pay/Co-insurance

You will need to pay a certain amount for each prescription that is filled, after you have paid your plan deductible (if there is a deductible). A copayment is a fixed cost, for example, a $25 copay each time you fill a prescription. Coinsurance is usually a percentage, such as when you owe a 15% coinsurance for covered medications, after your plan has paid its specified amount.

Step 3: The Coverage Gap, aka “Donut Hole”

After Step 2 (initial coverage) limit is met, beneficiaries will cover 37 percent of generic drug out-of-pocket costs and 25 percent of brand-name drug out-of-pocket costs. 25 percent represents a closing of the “donut hole” because it matches the percentage in the initial coverage period. In 2020, the gap for generic drugs will also be closed (at 25 percent).

This is where things get a little more complicated. Once you have spent $4,240 on covered drugs (in 2020—it changes each year), you may enter the coverage gap, sometimes colloquially called the “Donut Hole”. This is a temporary increase in your out-of-pocket prescription drug expenses. Once you have paid up to $6,350 (again, in 2020), you’re out of the coverage gap.

Step 4: Catastrophic Coverage

Once you have exited the coverage gap referenced above, Medicare plans begin what is known as Catastrophic Coverage—a period in which you pay only a small copayment or coinsurance for prescription drugs for the remainder of the year. It greatly reduces the cost of such medications (beneficiaries pay 5 percent). Of course, out-of-pocket totals reset at the end of each year.

Mayberry Advisors representatives can walk you through each of these details and provide you with assistance that is personalized for your needs.