Medicare Part D Prescription Drug Coverage

Medicare Part D is designed to help cover the cost of prescription drugs. Offered by private insurance companies, it’s available to those enrolled in Original Medicare, Original Medicare with a Medicare Supplement, and Medicare Advantage plans (MAPD) that include drug coverage. While Part D plans are separate from Medicare Advantage, many of the rules that apply to Medicare Advantage plans also apply to stand-alone Part D plans.

What Medicare Part D Covers

Each Medicare Part D plan provides at least the minimum level of prescription drug coverage determined by Medicare. However, plans may vary in terms of the specific drugs they cover, along with costs such as co-pays, coinsurance, deductibles, and costs.

Part D Formularies and Rules

Each plan has a formulary—a list of covered prescription drugs. While Medicare sets guidelines for the types of drugs covered, specific drugs can vary by plan. Some plans may even cover drugs that aren’t typically covered by Medicare, as part of an enhanced formulary. Other important rules include:

  • Step Therapy: Requires trying the most cost-effective drugs first before moving to more expensive options, if necessary.
  • Prior Authorization: Certain drugs may require approval from the plan before they are covered to ensure they are medically necessary.
  • Quantity Limits: Some drugs may have limits on the quantity you can receive over a set period for safety and cost reasons.

Medicare Part D Formulary Tiers

Drugs in Part D plans are divided into different tiers, which impact your out-of-pocket costs:

  • Tier 1: Lowest co-pay for most generic drugs.
  • Tier 2: Medium co-pay for preferred brand-name drugs.
  • Tier 3: Higher co-pay for non-preferred brand-name drugs.
  • Tier 3: Higher co-pay for non-preferred brand-name drugs.

If your doctor prescribes a drug in a higher tier, you can request an exception from your plan to pay a lower co-pay for a similar drug in a lower tier.

Medicare Part D Out-of-Pocket Costs

Your costs under Medicare Part D can vary depending on the plan you choose and the prescriptions you take. Typical out-of-pocket costs include:

  • Co-pays
  • Coinsurance
  • Annual deductible (some plans do not have one)
  • Costs in the coverage gap, also known as the “donut hole”
  • Late enrollment penalties, if applicable

Other factors that can impact your costs include whether you use a pharmacy or mail-order service, and whether your prescriptions are included in the plan’s formulary.

Medicare Part D Enrollment Periods

There are specific times when you can enroll in a Medicare Part D plan:

  • Initial Enrollment Period (IEP): This is the 7-month period that begins three months before you turn 65, includes your birthday month, and ends three months after.
  • Annual Enrollment Period (AEP): From October 15th to December 7th each year, you can join, switch, or drop a Part D plan, with changes taking effect January 1st.
  • Open Enrollment Period (OEP): From January 1st to March 31st, individuals enrolled in Medicare Advantage plans can switch plans or return to Original Medicare. However, OEP does not apply to stand-alone Part D plans in most cases.
  • Special Enrollment Periods (SEP): These occur due to specific events, such as moving out of your plan’s service area or losing employer-based coverage, allowing you to make changes outside of the regular enrollment periods.

Medicare Part D Eligibility

To be eligible for a stand-alone Part D plan or a Medicare Advantage plan with drug coverage (MAPD), you must be enrolled in both Medicare Parts A and B. Additionally, you need to live in the service area of the Part D plan you choose.

Medicare Part D Costs

In 2021, the average Medicare Part D cost was $30.50 per month, though actual premiums vary based on the plan and your income. You will also need to continue paying your Medicare Part B premiums, and if applicable, Part A premiums.

Some individuals with higher incomes may be required to pay an additional amount for their Part D coverage, called the Income-Related Monthly Adjustment Amount (IRMAA).

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Part D Late Enrollment Penalty

If you don’t enroll in Medicare Part D when you’re first eligible and don’t have other creditable drug coverage, you may be charged a late enrollment penalty. The penalty is 1% of the national base beneficiary premium for every month you were without drug coverage, and it’s applied for as long as you have Part D coverage.

Extra Help with Medicare Part D Costs (Low-Income Subsidy)

The Low-Income Subsidy (LIS) or “Extra Help” program provides financial assistance for Medicare beneficiaries who meet certain income and asset limits. This program can significantly reduce your Part D premiums, co-pays, and coinsurance, and may also eliminate any late enrollment penalty you owe.

To apply for Extra Help, you can visit www.socialsecurity.gov/extrahelp, call Social Security at 1-800-772-1213, or apply in person at your local Social Security office.

Part D Star Ratings

CMS uses a 5-star system to rate the quality of Medicare Part D plans. The ratings help you compare plans based on factors such as customer service, member complaints, and drug pricing. Plans with consistently low ratings may be flagged as low-performing, and enrollees will be notified if their plan is affected.

If a plan has a 5-star rating, you can switch to that plan once per year during a special enrollment period.

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