Medicare Part D is an add-on to Original Medicare that covers prescription drugs, since Original Medicare does not offer this type of coverage. Part D, which is the most recent addition to Medicare, is provided by private insurers that have been approved by the federal government.
There are a variety of Medicare Part D plans that cover a variety of drugs with varying cost-sharing structures. But, in general, most recipients pay a monthly premium that varies by plan and is determined by your state, county, and ZIP code, as well as copays and other possible costs. While Part D is technically optional, there are penalties for failing to enroll on time if you do choose to later enroll in a Part D plan.
There are two options for obtaining Medicare Part D prescription drug coverage:
- As a stand-alone Medicare prescription drug plan – If you have Medicare Parts A and B (also known as Original Medicare), you can supplement your coverage with a Part D prescription drug plan.
- As part of a Medicare Advantage plan (Medicare Part C) Part A and Part B coverage are both included in Medicare Advantage plans, and they can also include Part D prescription drug coverage. Not all Medicare Advantage plans cover prescription drugs, and you must already have Parts A and B to be eligible for Medicare Advantage.
How Part D Works
Medicare requires that all Part D plans meet a certain level of coverage. All plans must cover the same drug categories, such as asthma or high blood pressure medications. Although, plans can choose which specific drugs are covered in each drug category. Plans cover both generic and brand-name drugs.
Because the drugs that each plan covers can vary, each Medicare Part D plan has a formulary that lists the specific drugs it covers. As noted above, this list will most likely include both brand-name and generic medications. As well as at least two medications from the most commonly prescribed categories. So that means a plan’s formulary may not include your specific medication, but it may include a comparable alternative.
Many plans organize their list of covered drugs into “tiers”. In general, lower-tier drugs are less expensive than higher-tier drugs. Here’s an example of a typical Medicare drug plan’s tier system (but keep in mind that your plan may differ):
- Level or Tier 1: Preferred, low-cost generic drugs
- Level or Tier 2: Nonpreferred and low-cost generic drugs
- Level or Tier 3: Preferred brand-name and some higher-cost generic drugs
- Level or Tier 4: Nonpreferred brand-name drugs and some nonpreferred, highest-cost generic drugs
- Level or Tier 5: Highest-cost drugs including most specialty medications.
Formularies can change from year to year, and even sometimes within the same year. So, it’s critical to double-check that the medications you require are covered by your Part D plan.
Part D Catastrophic Coverage
After reaching $7,400 (in 2023) in out of pocket expenses for medications that are covered by your Part D plan, you will move into the catastrophic coverage phase of your plan. This total comes from what you pay for covered drugs in addition to certain costs that are paid by others. You will have significantly reduced copays or coinsurance rates for the remainder of the year for any covered drugs you take while this period is in effect. During catastrophic coverage, you will pay 5% of the cost of each of your drugs, up to $4.15 for generics and $10.35 for brand-name drugs (whichever is higher). Among the out-of-pocket expenses that contribute to you achieving catastrophic coverage are the following:
- Almost the entire cost of brand-name drugs purchased during the coverage gap (including the manufacturer’s discount).
- Any amount you paid during your initial coverage period
- Amounts paid by any pharmaceutical assistance programs such as State Pharmaceutical Assistance Programs (SPAPs), AIDS Drug Assistance Programs, and the Indian Health Service
Costs that do not go towards your $7,400 maximum are:
- Monthly premiums
- The amount your policy pays towards your prescriptions
- Costs for prescriptions not covered by your policy
- Costs for covered prescriptions from out-of-network pharmacies
- The 75% generic discount
It is essential that you are aware that the prices of the medications you take under your plan may change at any time during the plan year if certain conditions are met. It is necessary for your plan to notify you in the event that such alterations are made. During the course of the plan year, neither your deductible nor your premium can be changed.
Part D Restrictions
Medicare Part D specifically covers self-administered prescription drugs. Prescription drugs given by a doctor are usually covered by Medicare Part A or Part B. Medicare also does not cover over-the-counter medications, even if they were previously only available by prescription.
Some medications may be excluded entirely from coverage under your Medicare Part D plan. This can be determined by your plan’s formulary. Which may limit coverage of certain drugs due to medical necessity, cost, or safety.
In addition, you should look into any restrictions and requirements that the insurers you are considering have. This may include requiring prior authorization before your doctor can prescribe a drug, limiting the quantity of certain drugs, and implementing step therapy in which generic and lower-cost brand-name drugs are used before the most expensive drug is used.
If you or your doctor believe that none of the drugs on your plan’s formulary will help your condition, you can request an exception. This option is also available to you if your plan changes and your drug is no longer covered. Alternatively, you could consider switching plans during Medicare’s annual Open Enrollment Period, which runs from October 15 to December 7.
The Cost of Part D
You will be responsible for cost-sharing with your Medicare Part D coverage. Which can take the form of deductibles, copays, or coinsurance, in addition to premiums.
Part D Premiums
Monthly premiums for Medicare Part D plans can vary depending on your insurance company. The average basic monthly Part D premium for standard coverage in 2023 is $31.50 per month, but again, this is just an average and not an exact price. If you have drug coverage through a Medicare Advantage plan, there is usually no separate premium for it. It will be rolled into your Advantage plan premium.
Part D Annual deductible
Part D deductibles differ between plans. Some plans have no deductible, while others do. The maximum deductible allowed in 2023 is $505.
Part D Copayments or coinsurance
Medicare Part D and Medicare Advantage plans that include prescription drug coverage almost always charge a copayment or coinsurance for each medication purchased. The amount will vary depending on the plan. Part D coverage frequently employs a tiered cost-sharing structure, meaning that you’ll pay different prices for different types of drugs. In general, copays or coinsurance will be higher for brand-name drugs and lower for generics.
“Donut hole” coverage gap
Most Medicare Part D prescription plans have a temporary cap on what they cover. This is referred to as the coverage gap, or the donut hole. This coverage gap will be triggered if you and your plan spend a total of $4,660 on covered medications (as of 2023). You will pay a maximum of 25% of the cost of brand-name drugs once you are in the coverage gap. For example, if a drug’s total cost is $100 and you pay your plan’s $20 copay during the initial coverage period, you will be responsible for paying $25 (25% of $100) during the coverage gap.
Enrolling in Part D
There are three times when you can enroll in Part D drug coverage. Your Initial Enrollment Period, the annual Open Enrollment Period, and a Special Enrollment Period.
Initial Enrollment Period
Your Initial Enrollment Period is the seven-month period beginning three months before the month you turn 65. Including your birthday month and ending three months after your birthday month. So, if you turn 65 in June, you’ll have from March 1 to September 31 to enroll.
If you do not enroll in Medicare Part D during your Initial Enrollment Period, and you do not have “creditable prescription drug coverage,” you will almost certainly be subject to a premium penalty. Creditable prescription drug coverage would be a plan provided by your or your spouse’s employer or union that pays at least the same amount as Medicare standard drug coverage on average.
Keep in mind that the national base Medicare Part D premium usually increases every year. When it does, your penalty will be recalculated and increased to reflect the new base premium.
Open Enrollment Period
If you would like to switch to a different Medicare Part D plan, you can do so during the fall Medicare Open Enrollment Period. Which runs from October 15 to December 7 each year.
If you have Original Medicare, you can join a Medicare Part D prescription drug plan during this time, but you may face a premium penalty.
Special Enrollment Period
This is a two-month period beginning the month after your employment ends, or the month after you lose your qualifying employer insurance, whichever occurs first. If you or your spouse have “creditable prescription drug coverage” when you turn 65, you may be eligible for this Special Enrollment Period.
How to Choose the Right Part D Plan
There are a few things you should do when comparing Medicare Part D plans to make sure you get the one that fits your needs. One of the most important things to do is to look at the plan’s formulary. You’ll want to make sure that any medications you’re taking now, or that you think you might need at some point, are covered by each of the plans you’re considering. Before you sign up, talk to your health care providers about what brand-name and generic medicines to look for. As well as any alternatives that may also work if you can’t find the medications you currently take on the plans available in your area.
Another thing you’ll need to do when comparing plans is to check the pharmacy network associated with the plan. Medicare Part D carriers often make a deal for the lowest possible price with a network of pharmacies. So, check to see if your pharmacy or a nearby one is part of the plan’s network.
What doesn’t Part D cover?
Each plan decides what prescriptions it covers on its formulary. Typically most plans will not cover weight loss, cosmetic, fertility, sexual, or over the counter medications.
Do I have to sign up for Part D?
No, Medicare Part D is voluntary. In some cases you may not need it if you already have “creditable” prescription drug coverage from an employer, union, retiree benefits, COBRA, or Veterans Affairs health programs. Although, if you don’t sign up you’re left vulnerable. For example if you suddenly get sick you’ll have to pay for your medications out-of-pocket, and that can get very expensive.
Is there a late enrollment penalty for Part D?
If you’ve gone 63 days without creditable prescription drug coverage, either because you didn’t sign up when you were first eligible or because you lost your creditable coverage and didn’t get new coverage in time, you may have to pay a late-enrollment penalty when you sign up for Medicare Part D.
Working With EZ
Medicare is an essential part of your health and financial wellbeing as you age, and it covers a lot. But it can also be complicated, and you will have choices about what add-on plans. Such as Part D or Medicare Supplement Plans, will make the most sense for you. Whatever coverage you choose, make sure you understand all of your options, coverage, and premiums. Don’t be afraid to ask questions and speak to an EZ agent who can explain everything to you and tell you what you need to do to sign up.
EZ can assist you in enrolling in Medicare, purchasing a Medicare Supplement Plan, or simply weighing your options. Our agents work with the best insurance companies in the country. They can also provide you with a free comparison of all available plans in your area. We will go over your medical and financial needs with you and help you find a plan that meets all of your needs. Get started today by simply giving one of our licensed agents a call at 877-670-3602.