One of the biggest concerns of Medicare Beneficiaries is the coverage of their prescriptions. Original Medicare parts A and B don’t cover prescription drugs. Part D is how you get your prescriptions covered under Original Medicare.

We all know as we get older we do not get healthier, but we do our best to stay as healthy as long as possible and prescription drugs are part of that equation.

How Medicare Part D Works

Medicare Part D is insurance through private companies such as Humana, Aetna, and Cigna to name a few. You enroll in one of their plans to cover your prescriptions. All drug plans must be as good or better than the standard model that is laid out by Medicare and the Centers for Medicare and Medicaid Services (CMS).

Medicare Part D Cost

The base costs that you will be expected to pay as a Part D prescription drug plan member are your monthly premium and your yearly deductible. Once you hit that threshold, your plan steps in to take care of most of the costs.

Part D Premium

The monthly premium will vary from plan to plan. The carrier sets its own rates. This year, you can find Part D plans for less than $10 a month. The average monthly premium is around $33 per month.

Part D Deductible

The Part D annual deductible is $480. But your deductible may be lower depending on your zip code.

Medicare Part D Drug Tiers & Formulary

A formulary is a list of covered drugs. There must be at least 1 type of drug in each therapeutic category covered on any plan formulary. All plans separate the prescriptions into tiers.

These tiers organize drugs into cost-sharing groups. Typically the Tiers 1s are the least expensive and Tier 5 is the most expensive. Most drug plans have 5 tiers, but there are a few that have the 6th tier.

The 6 Medicare Part D Drug Tiers

  • Tier 1: Preferred Generics – Common generic drugs and usually the lowest cost.
  • Tier 2: Non-Preferred Generics – Less Common generic drugs that are relatively inexpensive.
  • Tier 3: Preferred Brands – Commonly used brands that work for most people
  • Tier 4: Non-Preferred Brands – Less common brand drugs
  • Tier 5: Specialty Tier – These are the most uncommon and expensive, typically you will pay the most for these prescriptions.
  • Tier 6: Select Care Drugs – Only on about 5% of plans. Select care drugs are common drugs for certain health conditions. Plans that have a tier 6 usually have a better cost share on the specific drugs in tier 6.

The 4 Coverage Stages of Medicare Part D Program

There are four coverage stages under the Part D program. The coverage model phases are as follows:

  1. Deductible Phase
  2. Initial Coverage Phase
  3. Coverage Gap
  4. Catastrophic Phase

Deductible Phase

You pay the full retail price of the prescription until you meet the deductible or $480. Some plans have lower deductibles, and sometimes they are only for certain drug tiers.

Initial Coverage Phase

You pay 25% of the retail cost of the prescription or the plan copay, whichever is less.

Coverage Gap

Otherwise referred to as the donut hole – once the retail cost of your prescriptions reaches $4,430 you’ll be responsible for 25% of the retail cost of the prescription. During this phase, the manufacturer of the drug is responsible for 70% of the cost, and the plan pays 5%.

Catastrophic Phase

Once you have paid the Total Out-Of-Pocket cost (TrOOP) $7,050; you move out of the coverage gap phase and into the Catastrophic phase. During this phase, you will pay a maximum of 5% of the cost of your drug’s retail cost.

Part D Late Enrollment Penalty (LEP)

With Part D, if you are eligible for prescription coverage and do not have coverage that is as least as good as the standard model set forth by CMS, then it is recommended to take drug coverage. While it is not mandatory, you will receive a penalty later in life when you decide to start a drug plan if there is no continuous coverage.

What if I’m not currently taking any prescriptions?

A common topic that comes up is, “I don’t take prescriptions, I don’t want to pay for something I am not using.”

While this is a compelling argument, no one wants to pay for something just to pay for it. It’s important to understand the value of why you should take one.

What happens if mid-year your doctor needs to add a medication. As we mentioned earlier, we don’t get healthier with age. It’s more likely that we’ll need coverage in the future than it is that we won’t.

If you do not enroll in a plan, and you do not have creditable drug coverage, such as Veterans Affairs (VA) or employer coverage, you will be penalized.

How Does the Part D Penalty Work?

For every month you go without creditable drug coverage once you are eligible to take a Part D plan; you’ll accrue a 1% penalty. The penalty is based on the average Part D cost of the year. The average cost does change annually.

Part D Penalty Example

If you go 4 years without prescription coverage that’s a 48% penalty. If you choose a drug plan that is say $15 a month, you would be paying an additional $16.32 a month on top of your premium.

Giving you a grand total of $31.32. ($15 + $16.32 = $31.32) This penalty never goes away, it will be applied to whichever plan you choose.

Drugs Not Covered Under Part D

  • Drugs used for anorexia weight gain, or weight loss
  • Over-the-counter medications
  • Vitamins and minerals
  • Fertility Drugs
  • Cosmetic drugs
  • Standard cold and cough medicine
  • Prescriptions for erectile dysfunction

How Do I Know Which Part D Drug Plan is Best For Me?

The best way to determine this is to speak to a licensed agent. A licensed agent has access to tools that allow them to check your prescriptions against each plan’s formulary and see which plan is covering your needs best.

If they see you have an expensive drug that is not being covered they can help you use GoodRx in order to perhaps find a coupon or even guide you on where to go to apply for a manufacturer coupon that could pay a portion or in some cases all of the cost of that prescription.

Give us a call today to help you find the plan that best fits your individual needs. You can also complete our online rate form to see rates in your area now.

by Lindsay Malzone, Lindsay Malzone is the Medicare expert for Medigap.com. She's been contributing to many well-known publications as an industry expert since 2017. Her passion is educating Medicare beneficiaries on all their supplemental Medicare options so they can make an informed decision on their healthcare coverage.
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