All You Need to Know About Medicare Part D
Medicare Part D is complicated. There’s no getting around it. It’s complicated because many conflicting interests have to be served to make it possible: drug manufacturers, drug retailers, insurance companies, drug regulatory agencies, and politics. It’s also complicated because every drug insurance plan offered is unique. They differ, most significantly, in what drugs they cover and at what cost but in other ways as well. And, Medicare Part D insurance coverage is not only complicated, it’s time-consuming. Unlike most other insurance, the beneficiary has to review and re-evaluate their plan every year because plans can change significantly from one year to the next. To add to the complexity, the government guidelines governing costs and timing change every year as well. The following will serve as a minimum need-to-know about Medicare Part D drug insurance.
To begin with, individuals initially enroll in Medicare Part D after they enroll for Medicare part A and B. Most people become eligible for Medicare when they reach 65 and can enroll 3 months before their birth month, during the birth month, or 3 months after their birth month. Anyone failing to enroll when they become eligible face a penalty that grows larger the longer they go without coverage. Once enrolled, that penalty will be added to all their premiums thereafter. People who are already covered by health insurance that meets government minimum standards can delay enrollment in Medicare until they lose that coverage without penalty.
Each year insurance companies contract with both drug manufacturers and local retail pharmacies to secure the best prices on drugs. Based on these negotiations and market considerations, they decide which drugs they’ll cover and at what price. This results in a drug insurance company’s formulary, listing all the covered drugs and their price tiers 1 – 3, lowest to highest. To take advantage of the price discounts offered by a drug insurance plan, the insured member must make drug purchases through one of the insurer’s preferred, ‘network’, pharmacies.
Medicare Part D plans are allowed to charge an annual deductible no higher than $325; but many plans have no deductible at all. Typically, plans with deductibles have a lower monthly premium; but drug coverage won’t begin until the member’s out-of-pocket drug expenses reach the deductible. After this amount is spent, most drug plans pay 75% of the cost of drugs listed in their formulary until both insurer and the insured spend $2970 on drugs during the year.
At this point, the insured has reached the coverage gap popularly referred to as the ‘doughnut hole‘ during which the insured pays all their drug expenses until the year’s total reaches $4750. This year, however, the insured will get a 21% discount on generic drugs and a 52.5% discount on brand name drugs from the drug manufacturers while in the doughnut hole.. This discount is provided even when the plan specifically states it will not provide coverage in the coverage ‘gap’. Also the $4750 limit is calculated using the retail cost of the drugs, not the discounted amount paid by the insured. Once the $4750 limit has been reached, the member attains ‘catastrophic’ level coverage for the rest of the year limiting the cost of their drugs after this point to just 5% of retail.
The law currently requires that, at the beginning of October each year, Part D insurers must mail plan members the price and procedure changes and a new drug formulary for the coming year. This is necessary because new drugs, regulations, generics, manufacturing changes, and prices come out every year effecting the market and causing insurers to re-evaluate and re-negotiate terms with manufacturers and retailers. Medicare Part D beneficiaries must carefully review the plan to make sure most if not all their drugs are still covered and that the cost of the plan is still affordable. If not, they need to log in to Medicare’s online system to find and sign on to another plan that fits their needs. Unless they do this by December 7, they will be automatically enrolled for the coming year in their current plan.
Medicare’s online system reflects the complexity of this type of insurance. As a result, the Medicare Part D member must enter all their drugs and wade through the myriad of options offered by each drug insurance company in order to find the best drug plan. Using the online system can be daunting especially for a newcomer or older seniors. The good news here is that a licensed Medicare health insurance agent familiar with the system, can help seniors make the right decisions.
At this point, I can see eyes crossed and arms out palms forward pleading ‘enough’. But there’s one more complexity factor. It’s Medicare Advantage, or Medicare Part C. It’s an alternative to Medicare Part B that is health insurance offered by private insurers that match or exceeds the coverage offered by the government. Some of those plans include drug insurance. Signing up for those plans replaces both Medicare Part B and Part D.
There you have it. Medicare Part D made simple or as simple as 829 words can make it. The Centers for Medicare and Medicaid Services (CMS) offers an online manual that covers this with more detail; and a licensed Medicare health insurance agent can help those unable to access this information.