Medicare Part D
Medicare Part-D Prescription Drug Coverage
Medicare Part-D covers prescription drugs and is a Medicare plan offered by private insurance companies that provides drug coverage to those enrolled in Original Medicare, Original Medicare with a Medicare Supplement, and Medicare Advantage (MAPD) plans that include drug coverage. Medicare Part-D is technically a type of Medicare Advantage plan, so many of the rules that apply to Medicare Advantage (M.A. and MAPD) plans also apply to stand-alone Part-D plans.
Medicare Part D Covers:
Each Part-D drug plan offers a minimum level of coverage determined by Medicare. However, Part-D plans can vary significantly by the exact drugs covered, copays, coinsurance, and deductibles, premiums, and several other things we will review in greater detail.
Covered prescription drugs list
Each Part-D plan, whether a stand-alone plan or one included in a Medicare Advantage Plan with prescription drug coverage (MAPD), has a formulary list specifying what drugs are covered. Medicare provides guidelines about the type of drugs to be covered but not the specific drugs. Medicare has excluded some medications, but Part-D plans may include them as part of an enhanced formulary. In addition to a list of covered drugs and associated copays and coinsurance, several other rules are outlined these include the following:
- Step Therapy – Starts with the most cost-effective drug therapy and progresses to other, more costly, or risky treatments only if necessary.
- Prior Authorization – Requires the review of some medications before the plan will cover them to ensure the medication is medically necessary and appropriate for the situation. If you don’t get prior authorization, a drug may cost you more or may not be covered.
- Quantity Limits – For safety and cost reasons, plans may set limits on the number of drugs they will provide in a certain period of time.
In Medicare Part-D formularies, each drug is assigned to a tier. A drug present in a lower-tier generally has lower copays or coinsurance than the drug in a higher tier. Examples provided below:
- Tier 1 – Lowest co-payment and with the most generic prescription drugs
- Tier 2 – Medium co-payment includes preferred brand-name prescription drugs
- Tier 3 – Higher co-payment includes non-preferred brand-name prescription drugs
- Tier 4 – Highest co-payment includes the high-cost prescription drugs
If your physician gives you a drug in the higher tier and a similar drug is present in the lower tier at a lower price. You have the option to file an exception and ask your plan for a lower co-payment.
Medicare Part D Out-Of-Pocket Costs
Your Medicare Part-D out-of-pocket cost will vary from plan to plan based on the specific plan you choose and the prescriptions you take. Part-D out-of-pocket costs include the following:
- Annual deductible (not all plans have deductibles)
- Costs in the coverage gap also known as the donut hole (more details on costs in the coverage gap can be found here)
- Costs if you get Extra Help (Low Income Subsidy)
- Costs if you pay a late enrollment penalty
Your Part-D out-of-pocket cost will also vary depending on:
- The drugs you use
- The plan you choose
- Whether you go to a pharmacy or get your medications via mail order
- Whether your plan covers the drugs
Medicare Part D Enrollment
There are several different enrollment periods for Part-D, and which applies to you depends on your situation.
Part-D enrollment periods include:
- Initial Enrollment Period (IEP)
- Annual Enrollment Period (AEP)
- Open Enrollment Period (OEP) Does not apply to stand-alone Part-D plans in some cases.
- Special Enrollment Periods (SEP)
Your Initial Enrollment Period includes the three months before turning 65, your birthday month, and the three months after your birthday month. During this time, you can:
- Enroll in Medicare (Parts A and B)
- Enroll in a Part-D drug plan
- Enroll in a Medicare Advantage plan (Part C)
The Annual Enrollment Period runs from October 15th through December 7th every year. All changes made during AEP are effective January 1st, the following year. During this time, you can do the following:
- If you’re enrolled in Original Medicare, you can enroll in a Medicare Advantage plan or vice versa.
- If you are enrolled in a Medicare Advantage plan with drug coverage (MAPD), you can switch to one without (MA Only) or vice versa.
- You can join or drop a Part-D drug plan.
- You can also change the Medicare Advantage plan you are enrolled in a different plan offered by your insurance company or switch to another plan provided by another insurance company.
The Open Enrollment Period takes place from January 1st through March 31st. This enrollment period allows individuals enrolled in a Medicare Advantage plan to make a one-time election to switch to another Medicare Advantage plan or Original Medicare. You are not permitted to enroll in a stand-alone Part-D plan if you’re in Original Medicare or switch from one stand-alone Part-D plan to another if you’re in Original Medicare during OEP. During OEP, you are only allowed to make one change, effective the 1st of the month following the month the change is submitted.
Special Enrollment Periods are available for special situations and may allow you to join, switch, or drop a Medicare Advantage or Part-D drug plan. The length and changes allowed can vary depending on the type of SEP. SEP’s include things like:
- Moving out of your plan’s service area
- Loss of employer-based coverage
- Natural disasters such as hurricanes
- and many other unique situations
Medicare Part D Eligibility
An individual who is enrolled in Original Medicare (Part A and Part B) will have to enroll in Medicare Part D prescription drug plan if they want prescription drug coverage. You must be enrolled in both Part A and Part B to be eligible to enroll in a Medicare Advantage prescription drug plan. You will also need to reside within the Part D plan’s service area.
Medicare Part D Premiums
According to the Centers for Medicare and Medicaid Services (CMS), the average monthly Part-D premium will be $30.50 in 2021. Monthly premiums can range from $0 to over $100. In addition to the premium for your Part-D plan, you will still have to pay your Medicare Part B premiums and Part A premiums if applicable.
The premium and benefits for a Part D plan can change each year, and any changes are effective January 1st. For this reason, it is essential to review your Part D plan each year to ensure you are in the right plan for the coming year, given your health and financial situation.
Higher-income beneficiaries pay an additional amount for Part D benefits, based on the income-related monthly adjustment amount (IRMAA).
The Social Security Administration (SSA) uses IRS data from the previous two years to make IRMAA determinations. As a result, your 2019 taxes will determine your IRMAA for 2021. If you have Medicare Part B and/or Part D and Social Security decides that you will have to pay higher premiums based on your IRMAA determination, you will receive an Initial IRMAA Determination Notice. The initial determination notice will include information on Social Security’s IRMAA determination as well as your appeal rights. Your IRMAA determination applies for one year. SSA will notify you near the end of the current year if you have to pay an IRMAA for the upcoming year.
Part D Late Enrollment Penalty
If a beneficiary does not enroll in a Part D plan when first eligible, they are assessed a 1% late enrollment penalty.
- The penalty is assessed for any continuous period of 63 days or more without drug coverage after the Initial Enrollment Period is over.
- The penalty is 1% times the number of full uncovered months
- A base benchmark premium is used to determine 1% penalty. This amount changes each year, so your penalty could change from year to year.
- Once assessed, the penalty never goes away
One of the most common situations people have with respect to the Part D penalty is what happens if I continue working past age 65 and don’t enroll in Medicare? Will I be assessed the penalty when I retire? The answer is no. As long as you have credible coverage (your employeR sends a notice every year indicating this), you will not be assessed the penalty if you defer your enrollment in Medicare until you retire after age 65. When you retire, you must understand that if you choose to enroll in COBRA instead of Medicare, COBRA coverage is NOT CONSIDERED CREDIBLE COVERAGE. That means if you enroll in COBRA, then a year later enroll in Medicare, you will be assessed the Part D penalty for the time you were enrolled in COBRA. If you have questions about this, it is critical you speak with a Medicare advisor to ensure you don’t end up paying a Part D penalty for the rest of your life.
Low-Income Subsidy or “Extra Help”
Medicare beneficiaries can qualify for Extra Help with their Part-D plan costs. The Low-Income Subsidy (LIS) is estimated to be worth approximately $5,000 per year. To be eligible for LIS, a person must be receiving Medicare, meet certain limits concerning income and assets, and reside in one of the 50 States or the District of Columbia. Depending on your financial situation, there are four LIS levels you can qualify for 20%, 50%, 75%, or 100% LIS. In addition to reducing premiums, copays, and coinsurance, LIS can reduce or eliminate the Part-D late enrollment penalty if it applies to you. This extra help applies to stand-alone Part-D plans and the Part-D part of MAPD plans.
To apply for LIS, you will need to complete an Application for Extra Help with Medicare Prescription Drug Plan Costs (SSA-1020) form with Social Security. This form can be submitted in the following ways:
- Online at www.socialsecurity.gov/extrahelp.
- Calling Social Security at 1-800-772-1213 (TTY 1-800-325-0778) and requesting an application be mailed to you or applying over the phone. Social Security representatives are available by phone Monday through Friday, from 7 AM to 7 PM.
- In person at your local Social Security office.
After you submit your application, Social Security will review your application and mail you a notice to tell you if you are eligible for LIS. If you qualify for Extra Help and are not yet enrolled in a Medicare Part D Prescription Drug Plan, you can enroll in a plan at that time.
Some people get Part D Extra Help automatically. These include those enrolled in Medicaid and Medicare (dual eligible), those receiving Supplemental Security Income (SSI), and those who qualify for a Medicare Savings Program. If you currently get benefits from any of these programs, you will not have to apply for Extra Help and will be enrolled automatically.
If you are eligible for LIS, Social Security will notify the insurance company you purchased your Part D plan from. They will make the adjustments to your premiums and out-of-pocket costs in their system, so they are applied automatically when you use your benefits.
Other programs that can help with Part D prescription drug costs
In addition to the LIS program described above, there are several additional programs available to those that may have difficulty paying for their prescription drug costs. Those programs are listed below:
Pharmaceutical Assistance Programs
Some drug companies have programs to help pay for medications for people enrolled in Part D plans. To determine if there is a Pharmaceutical Assistance Program that can lower prescription costs for the drugs you take, you can enter the specific medication you are taking here. If a program is available, it will identify it for you.
State Pharmaceutical Assistance Programs
Many states and the U.S. Virgin Islands have programs to help pay for prescriptions, drug plan premiums, and other drug costs. You can search and see if your state has a State Pharmaceutical Assistance Program available for you to take advantage of.
In addition to all of the programs available to help with costs, you can also use the tips outlined below to help keep your drug costs under control.
- Consider switching to generics or other lower-cost drugs. There may be generic or less-expensive brand-name drugs that would work just as well as the brand-name drugs you are taking now. Talk to your doctor to see if these more cost-effective options would work for you.
- You may be able to lower prescription costs by using mail-order pharmacies. With many Part D plans, when you use mail order, the copays are lower, or you can get a 90 day supply for a single copay.
- Enroll in a Part D plan that offers additional coverage in the donut hole. Some plans provide extra coverage when you are in the Part D coverage gap, like for generic drugs, as an example. However, it is essential to do a thorough comparison as plans with additional gap coverage may have a higher monthly premium.
Part D STAR Ratings
CMS uses a 5 Star Rating System to measure healthcare outcomes and customer service of Part D plans. Ratings go from one star being the lowest to 5 stars being the highest performing plan. There are several categories that each plan receives ratings for, in addition to an overall rating. Medicare beneficiaries can use star ratings to compare Part D plans from different insurance companies and benefit plans. Star ratings are applied to the various Part D plans offered by one insurance company. Star ratings are given out each year at the beginning of the Annual Enrollment Period (AEP), which begins in October each year.
The five categories used to give Stand-alone Part D plans their star ratings are:
- Drug plan customer service
- Member complaints, problems getting services, and choosing to leave the plan
- Member experience with the drug plan
- Drug pricing and patient safety
Your Medicare advisor can provide you with a plans star rating, or you can find them on Medicare’s Plan Finder tool, or call 1-800-MEDICARE, and they will provide them as well.
If a Part D plan receives less than three stars for three years in a row, that plan will is considered a low-performing Part D plan by Medicare. They will notify you if the plan you are enrolled in is identified as low-performing. If that happens, you should consider evaluating your plan to ensure it is still meeting your needs and what other options are available to you. Going forward, Medicare is changing the model it uses to assign Star ratings and is putting more emphasis on customer experience. There is a special enrollment period allowed for plans that have 5-star ratings. You are entitled to switch from your current Part D plan to a 5 star Part D Plan once anytime between December 8th and November 30th. For more information on 5-star Part D plans, ask a Medicare advisor near you.
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