A Guide To Medicare Prescription Drug Plans
The cost of prescription drugs is a major concern for many Americans, but especially those on Medicare. The cost of medications has been a huge part of the increase in health care costs in recent years. For years Medicare offered no help in this area.
It wasn’t until 2006 that Medicare Part D, the section that created prescription drug plans (PDPs), became effective. Part D plans are issued by private insurance companies to those who meet the eligibility requirements.
What Are Prescription Drug Plans?
Also known as standalone drug plans, these plans work in conjunction with Original Medicare to help pay for the cost of prescription drugs. Generally you pay a monthly premium to the insurance company in return for coverage. Prescription drug plans are used both with Original Medicare and Medicare Supplement insurance (Medigap) plans.
How Do Medicare Prescription Drug Plans Work?
The first thing to know is that there is no such thing as a standard prescription drug plan. Instead, the Centers for Medicare and Medicaid Services (CMS) set minimum guidelines. Insurers must meet the minimum guidelines but can provide more comprehensive coverage.
The Costs For Part D Plans
For any standalone Part D plan you can expect some or all of these costs:
- Monthly premium
- Annual deductible (not more than $435 for 2020)
- Copayment or coinsurance per prescription filled
Not every plan has a deductible and many plans that do have deductibles waive them for low-cost generic drugs. Once you meet the deductible, if you have one, you will begin paying copayments or coinsurance for every prescription you have filled.
The cost doesn’t always stay the same but can change during the course of a calendar year as you have more drugs covered by your plan. The cost to you changes as you pass through various stages (from 1 to 4).
Drug Plan Coverage Stages
After your deductible is met, you pay your plan’s copayments or coinsurance until the total costs paid by you and your plan together exceed $4,020 in one calendar year. After this point, you are in the “coverage gap” stage.
During the coverage gap stage, which is also known as the Medicare donut hole, you pay no more than 25% of the discounted cost of name-brand drugs. You’ll also pay 25% of the cost for generic drugs. If you spend $6,350 on covered drugs, you enter the catastrophic coverage stage.
In the catastrophic coverage stage, you will pay no more than 5% of the cost of any drug. The stages reset in January of each year and you are back at the first coverage stage.
How Are Drug Costs Calculated?
You might wonder if you’d be better off just paying cash for prescriptions but there are several benefits to using a PDP. For one thing, under drug plan guidelines, drug manufacturers must provide a heavy discount on their drugs when you’re in the coverage gap if they’re sold through a Part D plan.
For 2020, brand name manufacturers must provide a 70% discount on medications while you’re in the coverage gap. You pay coinsurance of 25% on this discounted price.
Even though you are only paying 25% of the discounted price, you receive credit for 95% of the full cost of drugs when calculating your total drug cost for the year. As an example, if you’re in the coverage gap and the full cost of a brand name medication is $650, the following would apply:
- 70% manufacturer discount brings the cost down to $195
- You pay 25% of $195, or $48.75
- Your plan pays 5%, or $9.75
- 95% of the full cost, or $617.5, counts toward your total drug cost
In other words, even though you only paid $48.75 out of pocket, you’re credited with $617.50 toward your out-of-pocket total. This allows you to get through the coverage gap quicker than you normally would.
Which Drugs Are Covered By Part D Plans?
Prescription drug plans aren’t required to cover every drug that’s available. Instead, each company has their own formulary. A formulary is a written list of medications and doses that the plan covers.
Even though drug plans don’t have to cover every drug, they do have some requirements about the type and number of drugs they cover. Every PDP must cover at least two drugs in every therapeutic category. Think of therapeutic categories as groups of drugs used to treat related conditions.
You have the right to ask for an exception from your PDP if they don’t cover a drug you normally take. Your doctor may need to help prepare your formulary exception request.
Drug Plan Tiers
Drugs in a plan’s formulary are organized into tiers. Your share of cost for a drug is determined by which tier it’s included in. There are four tiers in PDP plans:
- Tier 1 – preferred generic drugs
- Tier 2 – non-preferred generic drugs
- Tier 3 – preferred brand name drugs
- Tier 4 –non-preferred brand name or specialty drugs
Eligibility For Medicare Prescription Drug Plans
You are eligible for a prescription drug plan if you meet either of two conditions:
- Eligible for Part A, or
- Enrolled in Part B
Every person eligible for Medicare must enroll in a Part D plan when they are first eligible or be at risk for a penalty. You can avoid the penalty by:
- Enrolling in a standalone Part D plan
- Enrolling in a Medicare Advantage plan with drug coverage (MAPD plan), or
- Having creditable drug coverage through your employer or VA benefits
Choosing A Prescription Drug Plan
When choosing a Medicare prescription drug plan it’s important to review your medications to be sure they’re covered by the plan you’re considering. Also check the monthly premium and deductible amount. You can chat with a licensed professional to see which plans cover your drugs with the lowest premium and out-of-pocket cost.