Part D of Medicare covers prescription drugs. There are various plans (called “PDP’s”) to choose from. Unlike Parts A and B (“Original Medicare”), these plans are not offered by Medicare, but by private insurance companies. The companies offering these plans are, however, highly supervised by Medicare or by the Center for Medicare and Medicaid Services (CMS). With a lot of specialized terminology, complicated structures, and many choices of plans, Part D of Medicare is the most difficult part to understand. In this article, we hope to help you understand Part D and to provide some guidance for helping you pick the right plan.
Picking the right plan comes down to understanding the basics and then employing strategies. The right strategies are, of course, going to be different for each person. The insurance companies want to avoid something called “adverse selection,” or the tendency of only sick people to want health insurance. And yet, adverse selection is allowed in selecting a prescription drug plan. It doesn’t matter how old you are, how many (or how severe) health conditions you have, or how expensive your prescriptions are, you have the right to get a Prescription Drug Plan. And, by employing strategies, you can select the most economical plan for your needs.
There are many factors that determine how much you will pay for your prescriptions. Let’s start by covering a few of the basics. If you have a Medicare Supplement (or “Medigap”), you will need a separate Prescription Drug Plan, and the premiums for these plans vary greatly. But if you have a Medicare Advantage (MA) Plan or Part C of Medicare, you will find that prescription drug coverage is usually included. (For the differences, see our article, “Considering Medicare Advantage.”) We need to start by examining the four phases of coverage and what you will pay in each stage.
The Four Phases of Coverage in Prescription Drug Plans:
The Deductible – $445.00 in 2021
The Initial Coverage Level – about 25% paid by you + the Plan, up to $4130.00
The “Gap” – 25% of both generic and brand name drugs, up to $6550 in costs
Catastrophic –Once your total out-of-pocket cost have reached $6550, you pay the greater of $3.70 for generics, $9.20 for brand name drugs, OR 5% of the cost. Thus, you pay no more than 5% of the cost in this final stage
The deductible is not in every plan. Many Medicare Advantage plans do not have any deductible at all, as do some (the more expensive) Part D plans. More about this often confusing and very important phase later.
In the Initial Coverage Level, you pay about 25% for your drugs, and in some plans you might pay a little less or a little more. In the so-called “Standard” plans, it is exactly 25%.
The Gap was often called the “Doughnut Hole” because when these plans started in 2010, the Medicare recipient had to pay the entire cost. Now, for 2021, the Gap has virtually disappeared. The co-pays and co-insurance in the last two stages are pretty much written in stone. (Co-pays are a fixed amount; coinsurance is a percentage.) The first two stages, however, can have a lot of variance from company to company. Many plans do not have deductible at all, while some Plans only have a deductible for brand name drugs. Medicare Advantage Plans usually have no deductible for prescriptions, or else they only impose a deductible in the higher stages. Beware of companies that impose a deductible at all tiers or at Tier 2.
A second important fundamental that determines how much you pay is the “tier,” or the level that your drugs fall into. (These are tiers, not tears, which is what you shed when you get the prescription drug bill.) The companies group the prescriptions they cover into a document called a “Formulary,” which is list of the drugs they cover together with the tier the drugs are placed into. Companies have to cover a minimum number of drugs in each therapeutic category. The classifications of both brand name and generic drugs can vary greatly from company to company, and this is where thorough research comes in. Most companies put the drugs into one of five tiers, with the least expensive listed first:
The Five Tiers:
Tier 1 – Preferred Generic – a zero to 5.00 co-pay
Tier 2 – non-Preferred Generic – a 5.00 to 10.00 co-pay
Tier 3 – Preferred Brand name drugs – co-pays vary, about 45.00 is typical
Tier 4 – non-preferred brand name drugs – a 95.00 co-pay is about average
Tier 5 – “Specialty” drugs – usually a co-insurance percentage, such as 33%
There are a few more fundamentals to consider, such as where you get the prescriptions: pharmacies are either preferred, standard, or out of network; when you get Medicare drug coverage; how you get the prescriptions: pharmacy or mail-order (you can often save money by going through the Plan’s mail order program - some like it; some don’t); and whether you get Extra Help. We will touch on these basics later in this article. And, of course, there is the premium for the plan. Please don’t just pick the lowest premium plan (unless you take no drugs at all). It’s the most economical plan for your individual situation that is most important, and knowing that takes a bit of research, so let’s go through an example.
Go to https://www.Medicare.gov and click on “Find 2021 Health and Drug Plans.” Then, for now, click on “Continue without logging in. Next, click on the radio button at the bottom: Drug Plans, Part D. If you want to see the drug coverage in Medicare Advantage plans, click that button. (You can’t enter both at once.) Next, enter your ZIP Code and click “Continue.” Then answer the question, “Do you get help…?” and click on “Next.” After that, under “Do you want to see your drug costs?” click “Yes.” Then, for the pharmacy question, click on “Both.”
Now you are ready to enter your first drug. Click on “Find and Add Drug.” (It’s a good idea to have the bottle(s) in front of you, rather than go from a list). Start to spell the name the first drug – yours will eventually appear; click on it in the list, and then again at the green “Enter” button. Then, on the next page, enter the dosage (usually in “mg” or “mcg,”) and the frequency, for example, 2 every 30 days. When finished with that drug, scroll down and click “Add to My Drug List.” (It’s easy to miss this last part, because it’s way down at the bottom.) Then, continue to add drugs in the manner described above. When you have entered all of your prescriptions, click on “Done adding Drugs,” and now the pharmacy selection screen will appear. Enter your favorite pharmacy by spelling its name in the box at the top, and the ones closest to you will appear. It is a good idea to enter one or two alternates, just in case. Then, click “Finished.”
Now you are finally ready to examine the cost of your prescriptions. The first plan you see will be Medicare’s calculation of the most economical plan for you - based on the lowest monthly premium plus co-pays. For that plan, you will see the monthly premium, the yearly drug plus premium cost, and the deductible. Then, over at the right, click on “View Drugs and their cost,” and you will see what each of your drugs cost at each phase at the pharmacies you have chosen.
A note on pharmacies: Pharmacies are either Preferred, Standard, or Out-of-Network. Just as with tiers and co-pays, the Preferred pharmacies vary from company to company. Medicare.gov will tell you if your favorite pharmacy is Preferred in the plan you are looking at. In the PDP plan you are interested in, your favorite pharmacy may be only Standard, leading to higher co-pays or even Out-of-Network, leading to much higher co-pays. So you can either choose a different plan or choose a different pharmacy.
It is important here to say more about the deductible. What you want to know is where your deductible starts, i.e., at what phase. Most plans impose a deductible beginning at Tier 3 – the brand name drugs. Some Medicare Advantage Plans don’t impose a deductible until Tier 4, and a few don’t impose a deductible at all. Here is an example of how utilizing strategies can help you: Suppose you have a few generics and one brand name drug, costing 50.00 per month. If the plan you’re interested in applies a deductible at Tier 3 and has a co-pay of 45.00 for a 30-day supply, you will be basically just chasing your own deductible for most of the year. It may well be best to get your generic drugs under the plan, but skip the plan for the brand name drug and try to get it through one of the discount cards at a lower price. (One of the cards is very good and ranks the cost, using lowest cost first, at each pharmacy.)
It is also important to note that, if you are examining Medicare Advantage plans, the lowest prescription cost is probably not the most important factor. The most important factor is the plan’s network of physicians – you definitely want your primary care physician in the network; and you want your specialists in the network, as well, since you would otherwise pay more if you had a PPO, and you would pay all of it if you had an HMO. Also very important is the breadth of the, plan’s network – you want nationwide if possible. And still very important is the plan’s in-network maximum out-of-pocket limit - obviously, lowest is best. Only after making certain that your doctors are in the network and that you would have a low maximum out-of-pocket should you consider prescription costs.
The above method has its limitations. The biggest limitation has to do with time. You can generally enroll in or change Part D coverage during the Annual Enrollment Period, which is October 15 to December 7 of each year, and that is for a January 1st effective date. So if you pick a drug plan on November 1st, you keep it until December 31 of the following year – a 12 month commitment. But if your doctor puts you on a couple of expensive brand name drugs on, say, May 1, you may be stuck with an inadequate drug plan for 8 months. And there is very little that you can do about that. (You can appeal, or have your doctor appeal, to the plan to try to get coverage, but there is no guarantee.) Medicare does have the Open Enrollment Period, which runs from January 1 to March 31, but that is mainly to change Medicare Advantage plans or to leave a Medicare Advantage plan and return to Original Medicare (then you can get a separate Part D drug plan.) But you can’t change stand-alone Part D drug plans during this enrollment period. So all we can do is take a snapshot of your drugs in the fall, pick a plan, and then you generally must keep that plan for all of the next year. (We think it would be great if Medicare would add second Part D enrollment period in, say, June, for an effective date of July
1.) So the method has a limitation based on time constraints. But the method is better than guessing or picking a plan just because you have heard of the company.
These concepts are often highly technical, but they are worth knowing. All page references are to the excellent handbook, Medicare and You, which comes out in the fall. If you didn’t get one, call Medicare at 1-800-633-4227.
Extra Help – If your income and/or resources are too high to qualify for Medicaid, it is possible that you might still qualify for the Extra Help program. Those who qualify pay no more than $3.70 for each generic drug and $9.20 for each brand name drug. (See pages 87-89.) It is certainly worth seeing if you qualify - just call Social Security at 1-800-772-1213.
Late Enrollment Penalty – If you go 63 consecutive days or longer without any “creditable coverage,” you could be subject to this penalty. Creditable coverage includes employer or union prescription coverage, VA, TRICARE, Indian Health Service, and individual major medical or ACA coverage. Creditable coverage must be at least as good as that offered by the Standard Medicare prescription drug plans. See pages 79-80 to learn how this penalty is calculated. The longer you wait, the higher the penalty, and it stays with you for life.
Coverage Rules – Part D companies may impose certain limitations. These are (1) Quantity Limits – some drugs may be limited to your getting only a 30-day supply at one time; (2) Prior Authorization – according to Medicare, “You and/or your prescriber must contact your plan before you can fill certain prescriptions.” (page 82); (3) Step Therapy – “You may need to try one or more similar, lower cost-drugs before the plan will cover the prescribed drug.” (Page 82.) This one can be particularly onerous, especially for people age 75 and older. If the plan you are considering imposes Step Therapy for one or more of your drugs, you may wish to consider another plan.
Income Related Monthly Adjustment Amount or “IRMAA.” (Medicare is rife with acronyms and abbreviations.) Those with high incomes may have to pay more for their Part D prescription drug coverage. There is also a Medicare Part B IRMAA for those with certain high incomes. See page 78.
This article does not attempt to be exhaustive in explaining Medicare Part D. You may wish to thoroughly read Section 6 of Medicare & You 2021. You have until December 7, 2020 to enroll in Part D for 2021, unless you have certain qualifying events or situations. Good luck!