Part D and How it Works
Part D is voluntary prescription drug coverage that pays for medications that beneficiaries would normally pay for themselves, lowering the price for retail medications and making them more affordable. It is a Federal program that was started in 2006. However, private insurance companies are the ones that provide the coverage.
To limit their exposure, these companies use formularies, enrollment periods and coinsurance to pass some of the risks on to the insured. Rarely, is there ever a time where any one medication is covered at 100%.
Because it was designed to cover most medications, the laws in place are there to protect both the insured and the insurance company. When shopping for coverage, you use your current prescriptions to determine which company provides the most coverage.
When To Enroll
There are certain enrollment periods to be aware of that affect your ability to enroll. Knowing these periods is crucial in avoiding any late enrollment penalties when going on Medicare for the first time.
You are first able to get a Part D plan when you are new to Medicare.
Open Enrollment starts 3 months before you turn 65, the month you are 65 and 3 months after your turn 65. The effective date can be the same day Part B goes into effect.
You can delay your coverage for 3 months after your birth month to avoid a late enrollment penalty. If you do not have any other drug coverage, be mindful not wait too long to enroll.
Special Election period.
If you are working beyond the age of 65, you will have a special window to enroll into Part D. You can make the effective date the date your Part B goes into effect and are able to enroll 60 days prior but no later than 60 days after your coverage ends.
If you miss your SEP, you will have to wait until the next Annual Election Period before you are eligible to enroll and may be penalized for having a lapse in coverage.
Bob is a mechanical engineer and loves what he does. His wife is a few years younger and he decides he wants to work until he is 68. This way, he maintains coverage on his wife until she is eligible for Medicare.
Two months before retiring, he walks into his local Social Security office and enrolls into Medicare Parts A and B. His start date is set for May 1st.
Bob does not take any medications and decides he wants to delay enrolling into Part D as long as possible. After learning about the late enrollment penalty, he makes the effective date July 1st.
Since he was within the 60-day window, he avoids any late enrollment penalties.
Annual Election Period.
The Annual Election Period is the time of the year where people can make changes to Part D drug plans.
October 15th – December 7th is the time where you can enroll, disenroll, shop benefits and compare prices. Any changes you make, become effective January 1st the following year.
This is when companies make changes to their formularies and benefits. They change their networks, their copays, deductibles, coinsurance.
With all of these changes going on, it is critical you shop your plan every year. This way you are not affected and you keep your out-of-pocket as low as possible.
Even if you like the plan that you are on now, shopping your benefits will determine if there is a better plan that may be available.
AEP also allows you to shop your Medicare Advantage Plan, but we will talk more about that in a different article.
In order to be eligible for Part D, you have to be enrolled into at least Part A. Regardless if you are on Medicare disability or over the age of 65, as long as you have Part A, you are eligible to enroll into Part D.
People who continue to work when they are first eligible and have some kind of credible drug coverage through an employer, typically postpone their Part D enrollment. If your current coverage does NOT offer drug benefits, you may want to consider finding a plan to avoid any penalties.
Although Part D is “Optional,” use caution when delaying enrollment. If you decide not to apply, and have no other coverage, you will have a late enrollment penalty.
Even if you are not taking any medications, it may be a good idea to shop for a plan.
Late Enrollment Penalty:
The Part D late enrollment penalty is a fine that you pay for not having any credible drug coverage when you are eligible for Medicare.
The penalty is 1% per month for every month you do not have coverage of the average monthly premium. Since the average monthly premium changes, it is hard to determine exactly what that penalty may be.
The fine is then added to your monthly premium when you finally do enroll. You will continue to pay the penalty for as long as you continue to have a Part D drug plan.
Greg is a retired game warden who spent his entire carrier outdoors. He is 68 years old, in very good health and does not take any medications. He thought it would save him money to not have to apply for a drug plan and he determined he will apply when he really needs one.
After learning about a late enrollment penalty, he decided it was time that he applies for coverage.
He has to wait to enroll during the Annual Election Period and his coverage would take effect January 1st.
Let’s say the average monthly premium was $30 per month for that time period. He was without coverage for 38 months. At 1% per month, his penalty is an extra 38% or $11.40. He would pay this penalty for as long as he has part D coverage.
Average Monthly Premium X 1%/Month = Penalty
$30 X 1%(38months) = $11.40
How to pick a plan:
There are several different ways to pick a Part D drug plan. The premium, deductible, coinsurance, copays, and Star ratings are all different between the plans and change every year.
The best way to choose a plan is based on the total out of pocket for the year. This includes all of your premium, deductible and copays.
Medicare.gov has a great tool that most insurance agents refer to when comparing plans.
First, we get a list of all of your medications, your dosages, how often you take them and your preferred pharmacy. We then get a list of all the best-recommended plans based on this information. We would compare these plans from the lowest to the highest out of pocket and the plan’s star rating.
Usually, you would pick the plan with the lowest out of pocket.
Mrs. Suzie was recently diagnosed with type 2 diabetes. In addition to her cholesterol medication, she was prescribed metformin to help control her sugar.
When shopping for a plan, she entered her 2 medications and preferred pharmacy. The system listed 15 plans starting with the lowest out of pocket to the most expensive.
Here were her top 3 choices in her area, based on the medications she takes.
Remember, this is just an example. Your results may be different.
Based on her situation, Medicare recommends the first plan because it has the lowest out of pocket for the year. Although the second option has about the same premium, the first option costs less, even though the deductible is higher.
How Plans are measured:
Looking at the chart above, you will notice several columns to compare when picking a plan.
Estimated Annual Drug Costs.
This is the total estimated out-of-pocket for the year the medications that are covered. It includes all of the categories below to give an estimate. This is what most people compare when selecting a plan.
This is how much each plan would cost. You can pay for it by having it taken out of your social security deposit, setting up a bank draft, or having a bill mailed directly to you.
Deductible and Drug Copay/Coinsurance.
This is what your responsibility is when paying for your medications. It is determined based on each company’s formulary and changes between companies.
The deductible is what you pay before coverage starts.
The copay is what your portion is at the pharmacy when buying the drugs.
Sometimes, instead of a copay, you would pay a percentage of the medication depending on the ‘tier’ it falls in, known as the coinsurance.
Drug Coverage, Drug Restrictions, and Other Programs.
This section tells you if all of your medications are covered by the plan. You can click in this section to see if a drug is covered and what tier it falls within.
If a Medication has restrictions, this section will specify what medication has what restrictions. Usually, it will tell you that you cannot get but a certain amount each month, for control purposes.
Other Programs allow you to apply for extra help with your out of pocket if you have a low-income situation.
Starting in 2019 The Donut Hole, also known as the Part D coverage gap will start once the cost of your medications reaches $3820. This is the total cost between what the company paid and what you paid – However that may be split.
Once you reach the donut hole, you are responsible for the next $5,100.
To be clear, this $5100 is not 100% your responsibility and there is some help available.
While in the donut hole, pharmaceutical companies will be on the hook for a portion of your bill.
Starting in 2019 pharmaceutical companies will be responsible for 63% of the cost of generic medications and 75% of the name brand.
Leaving you responsible 37% on generic and 25% on the brand.
After you reach $5,100, you will enter what is known Catastrophic Coverage.
To make this as clear as possible, let’s say the retail cost of your medications is $6,000 for the year.
Once all of your copays and deductibles, plus what the insurance company paid reaches $3820, you will fall in the coverage gap known as the donut hole.
Your copays were $1,000.
The insurance company paid $2,820 before you reached the coverage gap.
At this point, you are responsible for the next $2,180 to total the cost of your Medications but only at 25% (assuming they were name brand).
$6,000 (RETAIL) – $3,820(TOTAL PAID SO FAR) = $2,180 (COVERAGE GAP)
In the donut hole, you pay 25% of $2,180 or $545 (Assuming they were named brand drugs).
Out of the $6,000, you paid $1,545
$1.000 (COPAYS AND DEDUCTIBLE) + $545 (25% of retail in the donut hole)
This is what is beyond the donut hole. Once you reach the out of pocket limit in the donut hole of $5,100, you will reach what is known as Catastrophic Coverage.
Catastrophic coverage starts after you have paid all of your $5,100 out of pocket.
At this point, your plan picks up 95% of the cost your medications.
We are here to help.
Medicare Part D can be overwhelming. If you are still confused about the different coverage limits and plan benefits, we are here when you need it.
We offer free Part D help for anyone who is looking to shop their current plan.
Every company makes changes to all of their benefits each year. This is why Medicare recommends you shop your plan every single year. Even if you like your current benefits, they may be completely different next year.
We provide unbiased help to anyone who needs it. Our job is to make sure you are maximizing your benefits.
Regardless if you are new to Medicare or been on Medicare for a while, we at the Benefit Enrollment Center are here to help. Our direct phone number is: 1-800-729-9590.