Medicare Part D: Prescription drug benefits to people over the age of 65

Medicare Part D can be confusing. We’ll help you sort through the details, to help you better understand how Medicare Part D works.

blank prescription bottle and pills

Prescription drugs just keep getting more expensive. Luckily there’s Medicare Part D. This is a component of the Medicare program that provides prescription drug benefits to people over the age of 65.

However, Medicare Part D has proven confusing to many seniors. That’s why we’ve created a comprehensive guide to help Americans over 65 understand Medicare Part D.   

Medicare Basics

Medicare is a federally funded program that provides healthcare to people over 65, people with disabilities, and those with end stage renal disease (ESRD). It consists of Medicare parts A and B, otherwise known as Original Medicare. Part A covers hospital insurance, and Part B covers medical insurance.

There’s also a Part C and D, although private insurers sell them off the marketplace. In addition, you need Original Medicare to get them.

Part C, or Medicare Advantage includes the benefits you get from part A and B. Yet, it excludes hospice care.

The purpose of Part C is to provide extra coverage. It may provide dental care, hearing, eye care, and health/wellness programs. Also, most plans offer prescription drug coverage because while Original Medicare includes it, the options are limited.

Keep in mind you don’t need to buy Part D if you already have an Advantage Plan, because it includes prescription drugs.

There’s also Medigap or Medical Supplement insurance (MedSup). This covers the loopholes in Medicare parts A and B. However, you can only purchase this policy if you don’t have Medicare Advantage.

What’s the history of Medicare Part D?

In the decades after the establishment of Medicare in 1965, it became increasingly difficult for Medicare recipients to afford prescription drugs. Seniors had to pay substantial out of pocket costs, because Medicare didn’t provide enough prescription drug coverage.

Luckily, the Medicare Modernization Act (MMA) was signed into law in 2003. This law created Medicare Part D. The law took effect in 2006.

To obtain it, you can buy Part D coverage off the market and through private insurers. You can also get it through HMOs (Health Maintenance Organizations) approved by Medicare and the federal government.

What is Medicare Part D intended to do?

Medicare Part D makes prescription drug coverage available to anyone with a Medicare part A and B plan. It helps to subsidize the cost of prescription drugs, as well as monthly insurance premiums. 

While you’ll still be paying premiums, deductibles, and copayments, they won’t be nearly as expensive as paying out of pocket for your prescriptions.

According to Chris Acker of CB Acker Associates Insurance Services, “Part D was designed to level the playing field for Medicare participants with low incomes who were not able to pay for spiraling drug cost increases.”

Through the plan, the federal government mandates that all plans must carry a standardized list of drugs called a formulary. The drugs receive a tier ranking, where the higher tiered drugs will be more expensive than the lower part of the spectrum. Besides the formulary, many insurers sell additional prescriptions, not on the initial list.

Acker says most plans include a higher level of drugs than the basic requirements for competitive reasons—as the drug industry is a profitable business.

What types of Part D plans are there?

Medicare Advantage - This is also known as Medicare Part C. These are private plans for people with Original Medicare coverage. They include all the Part A and B benefits, but come with more features like vision, hearing, dental, and prescription drug coverage.

If your plan doesn’t include prescription drugs, you may get a Part D plan. But, you must in turn give up your Medicare Advantage Plan for an Original one, because you can only have one or the other.

Speak with your insurer if you’re having difficulty choosing between an Original Medicare plan with Part D, and an Advantage plan.

Medicare Supplement Insurance (MedSup) - This is also called Medigap, because it covers the gaps in your Original Medicare policy. You may buy a Part D plan with it, as long as your Medigap policy doesn’t already come with prescription drug coverage.

If you have MedSup coverage, you can’t also have Medicare Advantage. You must choose one or the other.

We partner with insurers who specialize in Medicare Supplement insurance. So if you’re shopping for a MedSup policy with drug coverage, QuoteWizard can help you compare plans and rates.

Standalone Prescription Drug Plan (PDP) – This is an individual Part D policy that covers the gaps in Original Medicare. You can purchase this policy through a private insurer approved by Medicare. Just make sure you have Parts A and B, because you need them to enroll in Part D.

Who is eligible?

Anyone who qualifies for Medicare Part A, and who has a Part B plan, is eligible for Part D coverage. And if you qualify for Medicaid, you’ll automatically get to enroll in a Medicare Part D policy. 

How does one obtain Part D coverage?

Beneficiaries of Medicare Part D can enroll through a Medicare approved private insurer. They can also enroll with the Center for Medicare and Medicaid Services (CMS).

And just like other health insurance plans, you may only sign up during your initial enrollment period, the annual period, or during alternative open enrollment.

The initial enrollment period is when you first become eligible for Medicare. It’s a good idea to enroll in Medicare Part D during this period, so you can avoid paying a late fee.

Your Medicare Part D enrollment period is the same as your General Medicare enrollment period. It’s the three months before you turn 65, the month of, and three months after. 

Keep in mind that if you don’t enroll in Part D during the initial enrollment period, you’ll have to pay a 1% fine for every month you avoid signing up. 

If you miss the initial period, there’s an annual enrollment period that runs from October 15 through December 7. There are also a few other alternative enrollment periods sprinkled throughout the year. 

And as always, if you have a major life change or special circumstance, you may be able to enroll at an alternative time.

However, keep in mind that if you wait to apply during the annual or alternative period, you’ll still pay a fine.

Hector de la Torre is the executive director of the Transamerica Center for Health Studies. He says, “If you do not enroll [during initial enrollment] and you wait to join Part D during the Open Enrollment Period (October 15-December 7 each year), and you do not qualify for a Special Enrollment period, you will likely pay a late enrollment penalty.”

Even if you enroll on time, it’s important to read the fine print when applying for a new policy. 

For example, say you have a Medicare Advantage plan that comes with prescription drug coverage. If you sign up for Part D, they’ll automatically drop you from the Advantage Plan and re-enroll you in Original Medicare. This is because you have a Medicare Advantage plan that already includes prescription drug coverage, and you can’t have both. 

You wouldn’t want to wait until your next eligible enrollment period to switch plans, so it’s important to always read the policy guidelines.

De La Torre also says, “If you have employer or union insurance, you should contact their benefits administrator prior to enrolling in a Part D plan because changing your drug coverage may affect your doctor and hospital coverage or affect the coverage of your dependents or spouse.”

Bottom line: Double and triple check your policy provisions before making any changes.

How much does it typically cost?

How you pay for Medicare Part D is a little different than paying for other insurance policies. The amount you pay for your coverage is based on your income level. However, depending on the Part D plan you choose, the costs will differ. Different plans cover different drugs (beyond the formularies), which equates to no standardized prices.

Your coverage will consist of a premium, a yearly deductible, co-payments or co-insurance, and a “coverage gap”. We’ll discuss each of these below.

Premiums - Depending on which tax bracket you’re in, you’ll pay a different surcharge price, on top of your premiums. For example, if you file an individual tax return of less than $85,000, you won’t have to pay an extra fee.

But if your taxable income is above $214,000, you’ll pay $72.90 on top of your premium. This amount will be paid to Medicare, and not your private insurer. Or you can elect to have it come out of your Social Security check. You can check out the Medicare Part D premiums by income chart for more information.

However, the actual premium amount will vary. It can range anywhere from $10 to $200 a month.

Insurers calculate your premiums based on many factors. The most notable are your doctor or medical network, your prescription drugs, the state you live in, and the insurance company you choose to go through. Different individuals can have very different Part D premiums.

Deductibles - Deductibles are what you pay out of pocket before your insurance coverage kicks in. While deductibles will vary among plans, there are federally mandated caps on how much money a provider can charge for one. As of 2016, the Medicare Part D deductible cap was $360.

Co-payments or Co-insurance - After you pay your deductible, you’ll pay either a co-payment or co-insurance. Co-payments, or co-pays, are where you pay a set amount for drugs of a specific tier, every time you pick up your prescription. The co-pay is typically around $10 to $20.

For co-insurance, you pay a percentage of the cost of the prescription drug/s.

The Coverage Gap - It’s also called the “donut hole”. “This means that after you and your drug plan have paid a certain amount for covered drugs in a year, the percentage that you pay changes,” De La Torre says. “If you enter the coverage gap, you begin paying 45% of the cost of covered brand-name drugs and 65% of the cost of covered generic drugs.”

He also says that each plan will have a set dollar amount that you must pay out of pocket while in the coverage gap, and if you pay up to that amount, you’re out of the coverage gap.

You’ll then enter catastrophic coverage, and you’ll only have to pay a small co-payment or co-insurance amount for the rest of the year. However, there are exceptions to the coverage gap. For example, if you get monetary assistance for Part D, you won’t enter the coverage gap.

You can check out Medicare.gov for further details.

How does it work with other insurance?

There are many facets of health insurance. You can pair some policies with Medicare Part D, but not others. Here are the most common policies people try to pair with Part D:  

Medigap (MedSup) - If you have Medigap and it comes with prescription drug coverage, you won’t need Part D, or be able to sign up for it. If your Medigap policy doesn’t come with drug coverage, you may sign up for Part D. 

If you’re considering doing one of the two, click here to speak with a QuoteWizard approved agent who specializes in MedSup insurance.

Medicaid - If you have Medicaid, your prescription drugs will be paid for as long as you sign up for a prescription drug plan. You’ll most likely pay nothing, or a small percentage of the cost.

Employer or Union Health Coverage - If you’re still receiving health insurance through your current or former employer, or union, you may or may not qualify for Medicare Part D. Speak with your employer or union advisor for more information.

COBRA - You may be able to purchase a COBRA policy instead of or in addition to your Medicare Part D. Speak with the insurer who issued you your policy for further information.

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