What is Medicare Part D?

Medicare Part D Prescription Drug is coverage for retail prescription drugs or the medications that you pick up at a pharmacy. This is a voluntary program that allows you to access medications at an affordable rate and insures yourself against any prescriptions you may need future.

Medicare Part D is a federal program administered through private insurance companies. These companies offer retail prescription drug coverage to Medicare beneficiaries. Prior to 2006, when Medicare Part D began, tens of thousands of Medicare beneficiaries in America had no help with the costs of retail drugs, often spending thousands of dollars every year paying for their medications out of pocket. 

Medicare Part D is simply insurance for your medication needs. You pay a monthly premium to an insurance carrier for your Part D plan. In return, you use the insurance carrier’s network of pharmacies to purchase your prescriptions. Instead of paying the full price, you just pay a copay or percentage of your drug’s cost. The insurance company then pays the rest.

All Medicare Part D Prescription Drug plans cover the types of drugs most often prescribed for people enrolled in Medicare. This is decided by the U.S. government. But it’s up to each plan which specific brand name and generic drugs they will cover within those types. You can find this information by viewing a plan’s drug list.

Medicare Part D costs vary depending on the specific drug plan chosen. Generally, you are responsible for paying a monthly plan premium, and then deductibles and copays (or coinsurance) for your medications. People with higher incomes may have to pay more for the cost of their plan.

There are many Texas Medicare Part D plans to choose from, with plans ranging from $15.00 – $100.00 on up. Choosing your drug plan should never be based purely on the plan’s monthly premium because every plan has its own separate premium, drug formulary, and copay.  Just enrolling in the cheapest plan without checking the plan’s formulary could lead you into paying higher out-of-pocket costs for the year. This could be an expensive mistake especially if you learn later that the plan does not cover one of your medications. Remember, the least expensive monthly premium is not necessarily the least expensive plan when figuring in total prescription costs. Also, do not forget, all Part D plans, the benefits, formulary, pharmacy network, provider network, premium, and/or copayments/co-insurance may change on January 1 of each year.

How does Part D of Medicare work?

There are 4 stages to a Part D drug plan:

Annual Deductible
The allowable Medicare Part D deductible is $445 in 2021. Plans may charge the full Part D deductible, a partial deductible, or waive the deductible entirely. You will pay the network discounted price for your medications until your plan tallies that you have satisfied the deductible. After that, you enter initial coverage.

Initial Coverage
During this stage of Part D drug coverage, you will pay a copay for your medications based on the drug formulary. Each drug plan will separate its medications into tiers. Each tier has a copy amount that you will pay. For example, a plan might assign a $6 copay for a Tier 1 generic medication. Maybe Tier 3 is a preferred brand name for a $35 copay, and so on. The insurance company tracks the spending by both you and the insurance company until you have together spent a total of $4,130 in 2021.

The Coverage Gap
After you’ve reached the initial coverage limit for the year, you enter the coverage gap. During the gap, you will pay only 25% of the retail cost of your medications. (This is so much better than in 2006 when many people had to pay 100% of their drugs in the gap.) Your gap spending will continue until your total out-of-pocket drug costs have reached $6,550 in 2021.

Please note that to get into the gap, Medicare tracks the total costs of what you and the insurance company have spent, but to get out of the gap, they are counting only what you have paid in deductibles, copays, and gap spending that year, plus manufacturer discounts. They do not count anything the federal government contributes.

Catastrophic Coverage
After you’ve reached the end of the coverage gap, your plan will kick in to pay 95% of the costs of your formulary medications for the rest of the year. This feature in Part D drug plans helps you limit your potential spending if you have expensive medications.

Each plan will have its own drug list, or formulary, a list of drugs covered by a plan.

• A drug list can change from year to year.

  Part D plans may add or remove drugs from their drug list each year. Changes may also be made during the year, for example, if a drug is taken off the market. Your plan will let you know if a change affects a drug you are taking.

• Many Part D plans have a tiered drug list where drugs are divided into groups based on cost.

  In general, drugs on low tiers cost you less than drugs on high tiers. Plans may charge a deductible for certain drug tiers and not for others, or the deductible amount may be different depending on the tier.

There are rules for some prescription drugs that limit how and when a plan will cover them. These are called requirements or limitations. If you don’t follow these rules or don’t get permission from the plan saying you don’t have to (called an exception), you may have to pay the full cost of the drug out of your own pocket.

Utilization rules that affect your Part D coverage

Medicare allows drug plan carriers to apply certain rules for safety reasons and also for cost containment. The most common utilization rules that you may run into are:

Quantity Limits – a restriction on how much medication you can purchase at one time or upon each refill. If your doctor prescribes more than the quantity limit, then the insurance company will need him to file an exception form to explain why more is needed.

Prior Authorization – a requirement that you or your doctor must obtain plan approval before allowing a pharmacy to dispense your medication. The insurance company may ask for proof that the prescription is medically necessary before they allow it. This usually affects medications that are expensive or very potent. The doctor must show why this specific medication is necessary for you and why alternative drugs might be harmful or ineffective.

Step Therapy – the plan requires you to try less expensive alternative medications that treat the same condition before they will consider covering the prescribed medication. If the alternative medication works, both you and the insurance company save money. If it doesn’t, your doctor will need to help you file a drug exception with your carrier to request coverage for the original medication prescribed. He will need to explain why you need the more expensive medication when less expensive alternatives are available. Often this requires that he shows that you have already tried less expensive alternatives that were not effective.

Overall Medicare prescription costs can be affected by these restrictions. Always check your medications in the plan formulary to see if restrictions apply to any of your important medications.

Extra Help

The federal government offers extra help with paying for your Part D drug plan and paying for your medications if you qualify and is based on income. This is what is called a Low-Income Subsidy. Anyone can apply for this from Social Security at any time. Help is only awarded based on proving low-income and limited resources. You must have an annual income that falls below 150% of the Federal Poverty Level based on your household size.

Beneficiaries who qualify may receive assistance with paying their monthly Part D premiums, their annual Part D deductible, and also their co-payments on retail medications. There are different levels of qualification, and your subsidy level generally determines how much assistance you will get towards your premiums. Someone qualifying with a full subsidy would have 100% of their Part D premium paid for, up to the benchmark allowed by Medicare for that particular year.

Some Texas Medicare Advantage Prescription Drug plans and stand-alone Medicare Prescription Drug Plans provide partial or full coverage during the coverage gap. For example, some plans may not have a gap at all, while others may offer generic drug coverage in the gap. Plans with gap coverage may charge a higher monthly premium, so you should only consider one of these plans if you have high prescription drug costs and know you will reach the coverage gap.

There is a Late Enrollment Penalty for not having creditable prescription coverage. 

Ashford Insurance also offers Medicare Advantage (Part-C) and Medicare Supplements (Medigap) insurance Plans.

Learn About the “Donut Hole” Here