Medicare Part D: Prescription Drug Coverage
Key Takeaways:
Medicare Part D coverage is needed if you go with Traditional Medicare and is not needed if you are in a Medicare Advantage plan.
Initial enrollment is a 7-month period – 3 months before your birthday, the month of your birthday, and 3 months after your birthday. Do not miss this window or penalties may apply.
The average estimated cost for 2022 is $33.00/month. High earners may pay a surcharge of $12.40 to $77.90/month.
Beware of the “donut hole” coverage gap, whereby you must pay 25% of all medication costs out of pocket. For 2022, the coverage gap occurs when spending between $4,430 - $7,050.
If you opt to go with Traditional Medicare, you will need to purchase a Part D plan to have coverage for prescription medications. You may not need a Part D plan if you choose to go with Medicare Advantage instead; as most advantage plans include Part D already, but make sure to consider the limitations of Advantage plans before making your choice.
ENROLLMENT
We generally suggest signing up for Medicare Part D coverage during your initial enrollment opportunity, since it is very likely you will need to rely on prescription drug coverage at some point during your retirement – and if you delay signing up – you will be penalized with a late enrollment penalty. You may not need to sign up for Part D if you have “creditable coverage” from other sources i.e., your spouse’s employer’s coverage. If you can prove that you had “creditable coverage” during the period, penalties will not apply.
Enrollment periods for Medicare Part D coverage are no different than for Part A or Part B plans. The initial enrollment period is a 7-month period which consists of 3 months prior to your 65th birthday month, the month of your 65th birthday and 3 months following your 65th birthday. Whereas the annual open enrollment period is from October 15th through December 7th. Finally, there is a special enrollment period that consists of an 8-month window after you or your spouse lose employer coverage after terminating employment.
You will NOT need to enroll in Medicare Part D if you have Federal Employees Health Benefits Program or Tricare-for-Life. In both instances you already have better coverage than Medicare can offer, and you do not need to sign up for Medicare Part D.
COST
Generally, Medicare Part D plan costs will not break your bank – the average estimated cost for 2022 is $33 per month, unless you fall into the “High Income Enrollees” club – in which case you will have to pay extra towards your prescription coverage plan.
Surprisingly, you do not have to earn a tremendous amount of money to be amongst the “lucky few.” Singles are considered high earners if they make over $91,000, and for couples it is $182,000. The actual cost of the plan will depend on what drugs you need, but the high-income enrollee classification increases premiums by $12.40 - $77.90. Keep in mind that your Medicare premiums are based on your income tax returns filed 2 years prior.
To lower costs, many plans place prescription drugs into different “tiers” on their drug list. Each plan can divide its tiers in different ways. Typically drug coverage is divided into 4 different tiers – the higher the tier, the more expensive the plan:
Tier 1—Lowest copayment, most generic prescription drugs.
Tier 2—Medium copayment, preferred, brand-name prescription drugs.
Tier 3—Higher copayment, non-preferred, brand-name prescription drugs.
Specialty Tier—Highest copayment, very high-cost prescription drugs.
You may also have to pay either a copay or co-insurance when you purchase your medicine. A copay is a fixed dollar amount, whereas co-insurance is a percentage of your medication cost.
You should be aware that after you spend $4,430 on covered drugs, you begin to enter a “Coverage Gap.” What this really means is that your out-of-pocket expenses will temporarily increase until you spend a total of $7,050 in 2022. While IN the “Coverage Gap” you will have to cover 25% of all medication costs out of pocket, but once you exceed the $7,050 mark your costs will drop significantly – at which point you will only be responsible for copay or co-insurance amounts. This Coverage Gap is often referred to as the “Donut Hole” to help visualize the decrease in coverage while “in the hole”.
COVERAGE
Medicare Part D plan designs are regulated by the government and are required to have at least 2 medication choices in each therapeutic class; however, these plans are provided by private insurance companies and can vary from one another in terms of what drugs are offered, as well as other nuances.
There are a few helpful tips when selecting a plan that will allow you to get the most bang for your buck. The first step is to go to www.Medicare.Gov and enter all medications you take – including dosage, quantity, and frequency. This Medicare tool will provide you with a list of plans that will cover all or most of your medications. It is important to add ALL of your medications the first time you shop. The reason being is that if you need to add medications afterwards, it can increase the cost of the plan substantially.
The second important step is to find “preferred pharmacies” under the plan and purchase your medications from there. There is a big difference between “preferred” and “in-network” pharmacies. The nice part is that the Medicare tool will show both on one list. You may be accustomed to using “in-network” doctors to make sure your visits are covered by your health insurance plan, but when it comes to pharmacies and Medicare Part D coverage you have to look for “preferred pharmacies”.
Medicare has a rating system whereby they rate their plans from 1 to 5 stars – the latter being the best rating. Make sure to check these ratings prior to signing up for a plan, as it will have an impact on your experience.
Another “useful tip” you might consider if your plan does not cover some of your medications is to use services like www.GoodRX.com. Doing so helps you find coupons for medications not covered under your Part D plan – your savings can be in the hundreds of dollars each year.
ADDITIONAL INFORMATION
To get additional information about your Medicare drug coverage, you can visit www.medicare.gov/plan-compare. In fact, you can enter and save your current drug information to get more detailed cost information.
Another helpful resource is calling 1-800-MEDICARE (1-800-633-4227). This information service line is available 24/7.
One other helpful resource is our online video course about Medicare. If you want to learn about Medicare at a deeper level you can do so by clicking the following link - The Retirement Continuum Class - Medicare Segment. While the numbers are from 2020 and a bit outdate, the lessons and content remain relevant.
SOURCES:
https://www.medicare.gov/drug-coverage-part-d/what-medicare-part-d-drug-plans-cover
https://www.medicareresources.org/medicare-benefits/medicare-part-d/
https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage
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