What is Medicare Part D?
Medicare Part D is drug coverage available to people enrolled in Medicare Part A and or enrolled in Part B. Prescription plans are offered by private insurance companies and not by Medicare. Each drug plan will have its own premium, deductible, co-pays, formulary and network of pharmacies. Part D is separate from your Supplement coverage (also known as Medigap) plan. There are Medicare Advantage plans that include prescription coverage. If your Medicare Advantage plan includes prescription coverage then you will not need to enroll in a stand alone drug plan.
Lets review the four stages of a drug plan.
The Four Stages of Part D
Stage 1 -Annual Deductible
You pay the full cost of your prescription until your spending adds up to the amount of your deductible. Some plans have a $o deductible so depending on the tier of the drug, you will have a set co-pay or be responsible to pay a percentage for the drug. Some drug plans waive the deductible for tier 1 and tier 2 prescriptions. For example, your drug plan might have a $505 deductible but the only prescription you take is metformin which falls as a tier 1 drug on the plans formulary. Formulary is a list of your plans covered drugs. This means you will not be responsible to meet your deductible for metformin.
Stage 2- Initial Coverage
After you meet your deductible, your plan will help pay the cost of your drugs. You will be responsible to pay either a co-pay or co-insurance depending on the drug. You will be in the initial coverage period until the total cost of your drugs reaches $4,660. This includes the amount you and your plan have paid for your covered drugs.
Stage 3- Coverage Gap
After your total drug costs, reaches $4,660, you enter the coverage gap, also known as the “donut hole”. When you enter the donut hole, you will be responsible for 25% of the cost of your drugs. You will be in the gap until your total out of pocket costs reaches $7,400.
Stage 4- Catastrophic Coverage
Once your total drug cost reaches $7,400 you’re officially out of the coverage gap and your drug plan will begin paying for the majority of your drug costs. During this phase, you will pay 5% for each of your drugs or $4.15 for generic drugs and $10.35 for brand drugs (whichever is greater).
Now that we understand the phases of a drug plan, lets discuss the drug utilization rules that many of you may already be familiar with.
Drug Utilization Rules
Drug restrictions are controls that your Medicare Part D or Medicare Advantage plan can place on your prescription drugs and can include prior authorization, quantity limits and step therapy.
Prior Authorization (PA) is a requirement that your doctor must obtain from the drug plan for approval of the specific prescription. This is usually the case for very expensive medications, or highly potent and addictive prescriptions. It’s also a way for insurance companies to manage costs.
Quantity limits (QL) is a restriction on the amount or quantity of medications that is covered by your plan during a specific time. Quantity limits ensure patient safety and control health care costs. For example, your plan may only cover one tablet of lisinopril per day, so if you get a one month supply, you’ll only get 30 tablets. For riskier drugs such as opiods, some plans may only cover a weeks supply. When you’re out of a medication under a quantity limit and you need more, you will need to ask your doctor for a new prescription. Note- not all drug have quantity limits. Some examples of drugs that have quantity limits are drugs for depression, pain, cancer, diabetes and erectile dysfunction.
Step therapy is when the plan requires patients to try less expensive drugs before getting more expensive, higher tier drugs. Before the drug plan covers certain expensive drugs, they want to check that other more affordable drugs dont work for you first. This helps minimize costs for the insurance carrier and the patient. If you’ve already tried other alternatives with no luck, then your doctor can submit a drug exception to the drug plan.
Should I enroll in a drug plan if I don’t take prescriptions?
This is a question I get asked quite often. Prescription coverage is just like any other insurance coverage such as an auto or home insurance policy. Hopefully you won’t need the coverage, but if you do then you’ll be happy to be covered.
If you have no credible drug coverage, such as from the VA, retiree plan, Cobra etc. and you don’t enroll in a drug plan when you are first eligible then you put yourself at risk to be penalized when you later decide to enroll in a drug plan.
Medicare calculates the penalty by multiplying 1% of the “national base beneficiary premium” ($32.74 in 2023) times the number of full, uncovered months you didn’t have Part D or credible coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium. For example, Mrs. Gaily went without credible drug coverage for 31 months. When she did enroll in a drug plan, she had to pay the premium for the drug plan and an additional $10.15 each month, for as long as she has drug coverage (31 % x $32.74 = $10.15).
The real risk is not having coverage and then suddenly needing it. You typically can only enroll in a drug plan during the open enrollment period which is from October 15 through December 7 and the plan will be effective January 1. I’ve had many clients call me in the middle of the year to apply for a drug plan due to a change of health. Unfortunately, they had to pay for the cost of the drug out of pocket because they were unable to get coverage. To read more about enrollment periods please visit https://www.bluecompassinsurance.com/what-is-part-d/
What I recommend to my clients is to pick the most affordable drug plan available in your area. That way you’re protected in case your situation changes and you avoid future penalties!