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  • Writer's pictureNatalie M

Understanding Prescription Drug Coverage under Medicare

woman helping people at the pharmacy counter

Navigating the world of Medicare, including prescription drug coverage, can feel like learning a new language. Whether you're a new enrollee or a seasoned beneficiary looking to brush up on your knowledge, this blog is your go-to guide for understanding Medicare Part D.

What is Medicare Part D?

Medicare Part D is the prescription drug coverage portion of Medicare. It's designed to help cover the cost of prescription drugs. Unlike Parts A and B, Part D is offered through private insurance companies approved by Medicare. This means plans can vary in terms of cost and the specific drugs covered, but all must follow rules set by Medicare.

Decoding the Part D Formulary

A key term you'll hear a lot is "formulary." Simply put, a formulary is a list of prescription drugs covered by your Part D plan. These drugs are organized into tiers, which affect your out-of-pocket costs. Lower tiers generally include generic drugs and are less expensive, while higher tiers cover brand-name drugs and are pricier. It's crucial to check your plan's formulary to ensure your medications are covered. And note that the same drug may be tiered differently from plan to plan, which can have significant implications on your annual out-of-pocket costs.

Rules Part D Plans Must Follow

Medicare Part D plans must adhere to certain rules and standards set by Medicare. These rules are designed to ensure that you have access to a broad range of essential medications while also providing protections and standards for the quality of coverage. Here are some of the key rules that Part D plans must follow:

  • Standard Benefit Model: Medicare outlines a standard benefit model that all Part D plans must meet or exceed. This model, adjusted annually, defines your deductible, initial coverage limit, and out-of-pocket cost-sharing thresholds. Plans can offer variations, such as offering tiered copayments or no deductible, but they must at least provide the minimum standard coverage.

  • Formulary Requirements: Part D plans must cover at least two drugs in most therapeutic categories and classes, ensuring that you have access to a range of drug options. This rule is meant to prevent plans from excluding entire categories of drugs from their coverage.

  • Protected Classes: Medicare requires Part D plans to cover all or substantially all drugs in certain "protected" classes.

  • Pharmacy Access: Plans must provide adequate access to a network of pharmacies. This includes offering convenient access in both urban and rural areas.

  • Coverage Determinations and Appeals: Part D plans must have a process in place for you to request coverage exceptions and to file appeals if a drug is not covered.

  • Transition Policy: Plans must have a policy in place to provide temporary coverage for drugs that are not on their formulary under certain circumstances, such as when a you first join a plan, or if the plan removes a drug from the formulary during the year.

These rules are part of Medicare's efforts to ensure that Part D plans provide you with access to affordable and comprehensive prescription drug coverage while protecting you from excessive out-of-pocket costs, and while also ensuring quality of service. On that note, Part D plans are annually evaluated and rated on various measures of performance, including customer service, patient safety, and member satisfaction. These ratings, called Star Ratings, are public and can be a factor when you are choosing a plan.

What's Required of You?

There are compliance requirements that you, as the beneficiary, may encounter when you enroll in a Part D plan, as well as best practices that you will want to adopt to keep your cost sharing as low as possible. They include:

  • Formulary Compliance: You will be required to use drugs listed on your plan's formulary unless a formulary exception is granted.

  • Prior Authorization: For certain drugs, you may need to get prior authorization before the drug is covered. This means the prescriber must first contact the plan to confirm that the drug is necessary and meets the plan's criteria for coverage.

  • Step Therapy: Some plans use step therapy, where you must first try one or more specified drugs to treat your medical condition before the plan will cover a more expensive drug.

  • Quantity Limits: Plans may place quantity limits on some drugs, meaning the plan will only cover a certain amount of the drug in a specific time period. This is often done for safety reasons or to prevent misuse.

  • Preferred Pharmacies: Many Part D plans have a network of preferred pharmacies. You will usually pay less for your drugs when you use these pharmacies.

What Will You Pay?

Understanding the costs associated with Part D is crucial. Your cost-sharing will come in the forms of your annual deductible, plus co-payments and/or coinsurance. There's also the infamous "donut hole," a coverage gap where your out-of-pocket costs might temporarily increase. Here is a breakdown of cost-sharing under Medicare:

  • Annual Deductible: In some cases, either for all of your drugs or your higher tier drugs, you may be required to pay an annual deductible before the plan starts to share the cost of covered drugs.

  • Co-Payments or Coinsurance: Once the deductible is met, you will typically pay a co-payment (a fixed amount) or coinsurance (a percentage of the drug's cost) for each prescription. The amount will vary by drug tier, and may also be based on where you are as you work your way through the annual standard benefit model.

  • Coverage Gap ("Donut Hole") Management: The coverage gap places a temporary limit on what the drug plan will cover for drugs. It's important to note that your cost-sharing under each plan may vary widely, having an impact on whether you reach the donut hole, and when. This can significantly impact your annual out-of-pocket costs.

Navigating Part D Late Enrollment Penalties

One aspect of Medicare Part D that often catches beneficiaries off guard is the late enrollment penalty. The Part D late enrollment penalty is an extra charge added to your monthly Part D plan premium if you go without creditable prescription drug coverage (from a source such as an employer or union) for 63 consecutive days or more after your Initial Enrollment Period for Medicare ends. The amount of this penalty depends on how long you were without Part D or other creditable coverage. (Creditable coverage is coverage that has been deemed by Medicare to be at least as good as what Medicare would provide.)

The penalty is calculated by multiplying 1% of the "national base beneficiary premium" ($33.37 in 2023) by the number of full, uncovered months you didn't have Part D or creditable coverage. This amount is rounded to the nearest $.10 and added to your monthly premium. Notably, the national base beneficiary premium may change each year, so the penalty amount can also change annually.

The best way to avoid the late enrollment penalty is to enroll in a Part D plan when you're first eligible, during your Initial Enrollment Period. This period usually starts three months before you turn 65 and ends three months after that month. If you have creditable prescription drug coverage from another source, you can delay Part D enrollment without penalty, as long as you sign up within 63 days of losing your previous coverage.

How to Obtain Part D Coverage

As you navigate Medicare enrollment, you will have a choice regarding how to obtain your drug coverage. You have two main avenues: either enrolling in a stand-alone policy or choosing a Medicare Advantage Plan that includes your drug coverage. Let's break down these options to help you decide which path might be right for you.

  • Stand-Alone Prescription Drug Plans (PDPs): For those who are enrolled in Original Medicare (Parts A and B), adding a stand-alone Part D plan is a common route to gain prescription drug coverage. These plans are specifically designed to cover only prescription drugs. They're a go-to choice for individuals who want to stick with the traditional Medicare benefits but also recognize the necessity of prescription drug coverage. When opting for a stand-alone PDP, it's vital to compare plans in your area since coverage, cost, and formulary can vary widely between plans.

  • Medicare Advantage Plans with Prescription Drug Coverage (MAPDs): Alternatively, you might consider a Medicare Advantage Plan, also known as Part C, which bundles Medicare Part A, Part B, and Part D coverage into one package. These plans are offered by private insurance companies approved by Medicare and provide all your Medicare benefits in a single plan, along with extra benefits not provided by Original Medicare. If you prefer a more integrated approach to your healthcare coverage, choosing a Medicare Advantage Plan that includes prescription drug coverage could be your preferred solution. It simplifies your Medicare experience by consolidating your health and drug benefits under one plan and with one premium.

Deciding between a stand-alone Part D plan and a Medicare Advantage Plan with drug coverage boils down to your healthcare needs, financial considerations, and personal preferences. No matter which option you choose, it's crucial to review your plan's formulary to ensure your prescription drugs are covered, understand the cost-sharing terms, and consider the network of pharmacies and doctors. Remember, your health needs and plan offerings can change, so take advantage of the Medicare Annual Enrollment Period (AEP) to reassess your coverage options and make any necessary adjustments.

Final Thoughts

Medicare Part D is an important component of your health care coverage, but it comes with its complexities. First of all, you need to decide whether to enroll in a standalone Part D plan or to get your coverage as part of a Medicare Advantage plan. And you'll want to avoid penalties and lapses in coverage while simultaneously trying to maximize your benefits and minimize your cost-sharing.

Fortunately, navigating Medicare Part D doesn't have to be a solo journey. It is helpful to reach out to a licensed insurance agent who specializes in Medicare and who understands the plans available in your local area. These agents can help you research formularies as well as discuss with you how the choices you make can save you money and safeguard your health. Best of all, these consultative and enrollment services are available at no cost to you.

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