What is Medicare Part D?
Medicare Part D works in concert with other parts of Medicare and is specifically designed to assist beneficiaries with prescription drug coverage.
Here’s what you need to know about Part D plans if you’re considering additional drug coverage:
A Quick Overview of Part D Plans
Original Medicare (Part A and Part B) provides limited drug coverage at best, if at all, in many instances.
You can buy a stand-alone Part D plan (PDP), or you can enroll in a Medicare Advantage (Part C) Prescription Drug Plan (MAPD).
PDPs help pay for a variety of prescription drugs, including outpatient prescription drugs, vaccines, biologicals, and some medical supplies not covered under Original Medicare.
MAPDs are part of coverage when you enroll in a Medicare Advantage plan and choose a plan that has prescription drug coverage.
Both types of plans cover commonly prescribed drugs, but each plan has the flexibility to determine exactly which drugs they will include. Covered drugs are listed in what is known as the plan’s formulary, which is a complete list of covered drugs.
To be eligible for a Part D plan, you must meet the following criteria:
- You are age 65 or older.
- You are entitled to Medicare Part A and/or enrolled in Medicare Part B.
- Live in a Part D plan’s service area
- You have a qualifying disability for which you have been receiving Social Security Disability Insurance (SSDI) for more than 24 months
- You have been diagnosed with End-Stage Renal Disease (requires no waiting period)
You may also qualify for a Part D Special Enrollment Period if you meet certain criteria.
Also, if you are enrolled in Medicaid and become eligible for Medicare Part D, most of the time, you will be automatically enrolled in a Part D plan and pay no premium for it.
Do I Need Part D Prescription Drug Plan?
In most cases, it’s a good idea to at least consider a Part D prescription drug plan during your Medicare Initial Enrollment Period. If you delay, you will have to pay a late enrollment penalty if you decide later to join a Part D plan.
Generally, it makes good sense to enroll in a Part D plan if:
- You use prescription drugs regularly
- You may need prescription drugs in the future
- You do not have creditable prescription drug coverage
- You are concerned about rising prescription drug costs
- You have trouble paying for your prescription drugs.
How Does Part D Work?
Part D plans are divided into four basic parts: the deductible, the initial coverage phase, the coverage gap, and then catastrophic coverage.
The annual Part D maximum deductible for 2020 is $435. That means that every year, you must pay up to $435 (the exact amount depends on your plan) on eligible prescriptions before your coverage kicks in. This amount can be less and varies from plan to plan. Some plans may even waive, reduce, or charge the deductible upfront.
Once you’ve reached your Part D deductible, you will enter the initial coverage phase. You’ll stay in this phase until you reach a spending limit, which is $4,020 in 2020.
During this time, you will be responsible for a copay for every prescription you purchase based on your drug formulary.
Coverage Gap (Donut Hole)
When you reach an initial coverage limit, you will be vulnerable to a coverage page in some cases. This is known as the donut hole.
Whether or not you face the donut hole depends on your prescription drug coverage, how much you spend on prescriptions, and whether or not you have LIS/Extra Help.
After you’ve spent $4,020, you are in the “donut hole” and will be responsible for 25% of both your generic drug costs and your brand-name drug costs until your spending reaches $6,350.
Once you reach that amount, you will leave the donut hole and transition into catastrophic coverage.
Once you reach $6,350 in formulary drug costs, the amount you pay for prescription drugs is significantly reduced for the rest of the year.
You will pay the greater of a flat fee or 5% of the plan’s negotiated retail drug cost for your formulary medications.
If you qualify for the Extra Help program and receive full LIS benefits, you will have a $0 copay in the Catastrophic Coverage phase.
The Donut Hole is ending in 2020
Here’s what that means.
Since the Affordable Care Act was passed in 2010, the coverage gap has been incrementally closing. Originally, when you hit the gap, you were required to pay 100% of your prescription drugs until you reached Catastrophic Coverage.
The maximum percentage you pay from brand name drugs during the Initial Coverage is 25%. However, thanks to realignment, that 25% is the same amount you will now pay for brand name drugs when you reach the Coverage Gap stage as well, effectively eliminating the donut hole.
In previous years, Medicare designed the gap to encourage beneficiaries to seek generics or drug alternatives that are lower in cost when possible. The goal was to keep the total costs for the Part D program as low as possible.
What Drugs are Covered by Medicare part D?
Every Part D plan has a formulary, which is a list of all the brand name and generic drugs your plan covers. Your health plan may only help you pay for the drugs listed on its formulary.
Tiers organize drug formularies, according to co-payments. For example, a cheap, generic pain killer may be a tier-one medication that only costs you $5, whereas a brand-name cancer drug may be a tier-three medication that will cost you $30. Any drug labeled as “preferred” will be cheaper.
Tiers typically work as follows:
- Tier 1 – Lowest co-payments, mainly generic prescriptions
- Tier 2 – Moderate co-payments, preferred brand-name prescriptions
- Tier 3 – High co-payments, non-preferred brand-name prescriptions
- Tier 4 or “Specialty” Tier – Highest co-payments, high-cost and non-preferred prescriptions
Some plans may have more than four tiers, and some may only have two or three. Also, drugs in one plan listed as a Tier 1 drug, may be listed as a Tier 2 drug, and so forth. Don’t assume just because a drug is in a certain tier for one plan that it will also be listed as such in all other plans.
Formularies are updated annually but may also have some changes during the year as well. These changes can happen when a new drug is introduced, or the FDA decides that a drug is harmful.
When shopping for a Part D plan, you can usually find a link to the formulary on the summary of benefits and coverage (SBC).
Or, before you purchase a plan, a licensed agent can help you perform a formulary drug search to make sure the plan you like covers all of your prescriptions.
If the drug you need is not part of your plan’s formulary, you can request an exception through the insurer to see if they will approve the drug for your use.
Over-the-Counter (OTC) Coverage With Part D
While some Medicare drug plans may cover a limited number of over-the-counter drugs, you’ll want to consider a Medicare Advantage Part C plan for OTC coverage. OTC drugs don’t require a doctor’s prescription to be purchased and include things like pain pills, fever reducers, allergy pills, and anti-inflammatories.
Original Medicare does not cover OTC drugs, and a few Part D plans may cover costs, but for the most part, a Medicare Advantage Part C plan is your best option.
Medicare Advantage plans with prescription drug coverage often include prepaid cards that can be used to purchase pharmacy products that will be defined in the plan’s list of eligible products and medications.
These cards do not usually cover other pharmacy items such as chapstick, deodorant, soaps, and candy.
Pre-paid OTC cards typically have a balance between $50 and $100 per month with no carry-over and can be used at major pharmacies, including online stores. Once you exceed your allowance, you must wait until your insurer reloads it.
Drugs Not Covered by Part D Plans
There are many drugs that Medicare plans will not cover under the Part D benefit, based on national Medicare guidelines. These include, but are not limited to:
- Drugs for anorexia, weight loss, or weight gain
- Fertility drugs
- Drugs for cosmetic purposes or hair growth
- Drugs that relieve cough and cold symptoms
- Prescription vitamins and mineral products, except for prenatal vitamins and fluoride preparations
- Nonprescription drugs
- Sexual dysfunction drugs
- Non-FDA-approved products
- Drug efficacy study implementation (DESI) drugs (drugs that have been determined to be safe by the FDA but not effective)
- Bulk chemicals in the following STCs: U6I, U6Q, U6U, U6W, and U6X
- Devices (i.e., diaphragms)
- Ingredient/adjuvant such as sterile water for injection
- IV line flush such as normal saline IV flush
- Medical supplies
- Drugs covered under Medicare Part A or Part B
Prescription drugs used for the above conditions may be covered if they are being prescribed to treat other conditions. For example, a medicine to relieve cold symptoms may be covered by Part D if it is used to treat something other than a cold (i.e., shortness of breath from severe asthma) as long as the FDA approves the drug for such treatment.
How Much Does a Part D Plan Cost?
If you enroll in a Medicare Advantage plan, your prescription drug premium will be included in your medical premium.
Even if you qualify for free Part A coverage, most of the time, you will have to pay the standard Part B premium of $144.60 in 2020 for Part B coverage.
When you keep Original Medicare and enroll in one of many Part D plans, you will have to pay a separate Part D premium. Typically, these run anywhere from $13 to $80 per month, depending on your income.
You also need to take into account that you may have deductibles, co-payments, and coinsurance to pay, depending on the benefits of your plan. These may be offset if you qualify for the Extra Help program.
Be sure to ask about all of these variables when you’re shopping for a Part D plan.
What is the Medicare Part D Penalty, and Does it Affect Me?
If you do not have some form of reliable prescription drug coverage (Part D, MAPD, VA, employer, etc.) by the end of your initial enrollment period, you will incur a late enrollment penalty fee if you enroll in a Part D plan at a later date.
Each month you delay enrolling in a Part D plan, you will have to pay a 1% late enrollment penalty.
For example, if you wait 9 months to enroll in a Part D plan and you don’t have creditable coverage during that time, your monthly premium would be 9% higher than the base beneficiary premium. That amount is $32.74 in 2020, so you would end up paying an additional $2.95 per month.
The exceptions to this are if:
- You have a creditable drug program in place, such as through the VA, TRICARE for Life, retiree plans, Federal Employee Health Benefits, your employer, or a Medicare Advantage program that offers prescription drug coverage.
- You qualify for the Extra Help program.
- You can prove that you were not properly informed that your current drug coverage was considered creditable. Creditable drug coverage is defined as that which is as good or better than the basic Part D benefit.
When you decide to enroll at a later date, be sure to keep proof that you had creditable coverage to avoid paying the late penalty.
If you enrolled in Medicare because of a disability and have to pay a premium penalty, after you turn 65, you will no longer have to pay the penalty because you will qualify for a new Part D IEP.
The Extra Help/Low-Income Subsidy Program
Medicare beneficiaries who need help paying for prescription drugs may qualify for financial assistance through the Extra Help Program, also often referred to as the Low-Income Subsidy Program (LIS).
Most Extra Help beneficiaries save as much as $4,000 on prescriptions each year. Your copays can go from as much as $40 to as little as just $2 for some drugs.
Those who qualify will also be able to enroll during a Special Enrollment Period.
Plus, those with LIS can have a special enrollment period. LIS can also help you pay late enrollment penalty fees if you enrolled in a Part D or Medicare Advantage plan at a date after your IEP. To be eligible for LIS, you must have a Part D or Medicare Advantage plan.
LIS qualifications are based on your and your spouse’s income and assets. For 2020, your annual income must be less than $19,140 for an individual or $25,860 for a married couple living together. These amounts are reviewed and changed annually.
Even if your income is higher, you may still qualify if you or your spouse:
- Support other family members who live with you
- Have earnings from work
- Live in Alaska or Hawaii
How to Save on Prescription Drugs
For additional savings, there are a couple of things you can do that will keep extra dollars in your pocket.
One of these is by utilizing mail-order prescriptions through pharmacies with no delivery fee. When you order online instead of visiting a physical pharmacy, the pharmacy saves money because they don’t need to have as many employees in the store, and they don’t have to keep as many medications in stock.
You can still call your pharmacist to ask questions about your prescriptions, but you don’t have to leave your house, and your pharmacist doesn’t have to keep your medication in stock. These savings are often passed along to you.
Prescription discount cards are something you should consider, as well. Mostly, they are coupon cards, and while some pharmacies may not allow you to use both your insurance plan and a prescription discount card together, you can still use the card to save a lot of money. Similar to this, consider signing up for a drugstore rewards program that may also cover prescriptions.
Another cost-saving measure is to go with a generic brand when possible. You’ll get the same medication at a fraction of the cost.
Ordering in bulk also saves money as well. If you can, try to order a 90-day supply when possible. It’s even more convenient when you only need to get your prescriptions filled once every three months.
You might also consider talking with your doctor to see if any alternative medications are just as effective but may cost less.
How Part D Works with Other Insurances
In some cases, you’ll have more than one form of insurance coverage, and you’ll need to coordinate benefits to save the most money. The plan that pays first is known as the primary payer, and others are considered secondary payers.
The primary payer will pay first, and the secondary insurance will pay the remaining unpaid amounts up to that plan’s limits.
Instances when your Part D coverage will be the primary payer:
If you or your spouse have retiree or union retiree group coverage with Part D, then Part D will be the primary payer.
When you’re covered under a State Pharmaceutical Assistance Program (SPAP) along with Part D coverage, then Part D will also be the primary payer. If you also have group health coverage, then the SPAP coverage would fall to third as the payer.
If you have TRICARE or Veteran’s Affairs benefits, you might already have some prescription drug coverage. You usually can’t use Part D and TRICARE at the same time, but you can use your VA benefits with Part D. Enrolling in Part D while you have TRICARE may result in the loss of your TRICARE coverage.
If you have VA coverage, you may want a Part D plan if you live too far from a VA facility, use a non-VA doctor or pharmacy, reside in a non-VA nursing home, or if you qualify for the Extra Help program.
Instances when your Part D coverage will NOT be the primary payer:
If you have an employer’s or union’s group health coverage plan and you’re still actively employed, the group plan becomes the primary payer. Your Part D plan is a secondary payer.
However, if you work for a small firm of 20 or fewer employees, then in most cases, your Part D plan is still the primary payer.
If you’re still working and covered under workers’ compensation coverage and have Part D coverage, the worker’s comp is the primary payer for all prescriptions related to any illness or injury you suffer on the job. If an injury or illness is not job-related, then your Part D plan is the only coverage you will have.
If you’re in an auto accident and have no-fault or liability insurance, then that insurer is the primary payer, but only if the prescription is related to treating your accident injuries.
If you have Medicaid and Medicare Part D, then Medicaid pays only for drugs not covered by your Part D coverage. The two programs will never overlap payments.
If you also have a group health plan and both other programs, then Medicaid becomes the payer of last resort.
Part D Enrollment Periods
To be eligible for a Part D plan, you must enroll in either Medicare Part A or Part B first. To be eligible for an MAPD, you must enroll in both Medicare Part A and Part B. You also need to live in a service area of a plan that provides prescription drug coverage.
However, you are only able to enroll in Part D coverage during certain parts of the year.
Initial Enrollment Period (IEP)
Just as it is for Original Medicare, the Part D initial enrollment period begins three months before the day you turn 65 and ends three months after your birthday. This is when most people will need to select a form of prescription drug coverage.
If you do not enroll in either a Part D plan or a Medicare Advantage plan during your IEP, you will be charged a late enrollment penalty fee.
Annual Enrollment Period (AEP)
The Annual Enrollment Period runs from October 15 through December 7 of every year. If you don’t enroll in a Part D plan or an MAPD during your IEP, you can select a plan during AEP instead.
If you decide later that you do not like Medicare prescription drug plans and want to switch from a Part D plan to a Medicare Advantage plan, you can do that during the Annual Enrollment Period as well.
Special Enrollment Period (SEP)
Certain circumstances may allow you to enroll in a prescription drug plan or Medicare Advantage plan outside of the AEP.
If you move to a new plan service area, are released from jail, lose or gain Medicaid eligibility, lose your employer coverage, or if your plan is discontinued, you will have 60 days to change plans.
Additionally, if you are eligible for Medicaid or another savings program (like SPAP, Extra Help/LIS, or a Special Needs Plan), you may be granted a quarterly SEP. Meaning you will have the ability to change plans once per quarter for the first three quarters of the year.
5-Star Special Enrollment Period
Through satisfaction surveys and a review of overall plan benefits, Medicare assigns each Part D and Medicare Advantage plan a “star rating.” Five stars are the highest rating, and one star is the lowest.
The ratings are updated every Fall. After the new ratings are released, if you discover that you have access to a 5-star prescription drug plan and you didn’t have access to a 5-star plan before, you can change to the new 5-star plan.
This period lasts from December 8 to November 30 of the following year, which meaning you have almost an entire year to make the change.
Best Medicare Prescription Drug Plans
Although there are several options to help you rate and find the best Part D plans on the market, the absolute best resource is a licensed agent in your area.
Medicare Plan Finder has thousands of agents in 38 states, and because we work with Medicare clients every day, we can tap a vast resource of experience and knowledge to help you sort through your Part D plan options.
We’ll look closely at your healthcare needs, incorporate which doctors you visit, what prescriptions you take, your finances, your budget, and other factors to help you find the best Medicare Part D plan that serves your area.
We work closely with several insurance companies, and we also know what the best rated Medicare Part D plans are so that you can get the optimal plan for your situation.
How to Apply for Medicare Part D
To apply for a Part D plan, you must make sure that a plan covers your service area. Be sure to compare all costs, including premiums, deductibles, copays, and coinsurance.
Also, be aware that you can only sign up for Part D plans during certain enrollment periods. Signing up when you’re first eligible can help you avoid late enrollment penalties.
To enroll in a Part D plan, you can do any of the following:
- Call 1-800-MEDICARE. Counselors can guide you through your options and enroll you in a plan.
- Use Medicare’s Plan Finder tool to compare plans and enroll.
- Call the plan directly, and an insurer’s representative will assist you.
You can also discuss your options, get help applying for low-income subsidies, and get answers to your questions by setting up a free appointment with one of our agents.
Our agents are licensed to work with several different carriers so that you will get the best possible information and answers for your unique situation.