Medicare Part D Plans for Prescription Drugs

Medicare Part A and Part B do not include coverage for prescription drugs. This coverage can be obtained through a Prescription Drug Plan (PDP) also known as Part D. This article provides an overview of Medicare Part D.

PART D (Prescription Drugs) - Overview

Medicare Parts A & B do not include coverage for prescription drugs. This coverage can be obtained through a Prescription Drug Plan (PDP) also known as Part D. There are two ways to do this – enroll in a standalone Part D Plan or get PDP coverage through a MA-PD Plan which covers both Part C and Part D benefits.

Coverage

While Medicare makes efforts to include prescription drugs that are essential for healthcare, there are many exclusions like over-the-counter drugs, drugs used for weight gain or weight loss, fertility enhancement drugs, vitamins and minerals, and drugs for the treatment of erectile dysfunction.

Each prescription drug plan has a formulary of drugs covered by the plan, as explained below.

Enrollment

You should typically join a Medicare drug plan when you first become eligible and do not have any other creditable prescription drug coverage.

If you fail to enroll in time and then go without coverage for more than 63 continuous days, you may end up paying a penalty for late enrollment. The late penalty fee is calculated by multiplying 1% of the “national base beneficiary premium” ($33.37 in 2022) by the number of full, uncovered months when you were eligible but did not join a Medicare drug plan.

There are many types of enrollment periods during which you can join a PDP Plan.

Initial Enrollment Period (IEP): You can enroll in a PDP Plan when you first become eligible for Medicare and sign up during your Initial Enrollment Period (IEP) which starts three months before the month you turn 65 and runs for three months after, for a total duration of 7 months. You need to be eligible for Part A and/or enrolled in Part B.

Annual Election Period (AEP): If you have Medicare, you can enroll into a PDP plan between October 15th and December 7th of each year. Your coverage will begin on January 1^st of next year. You need to be eligible for Part A and/or enrolled in Part B.

Special Enrollment Period (SEP): Under specific situations, you may be eligible for a Special Enrollment Period e.g. if you move out of your plan's service area, you enroll into or leave Medicaid, you qualify for Extra Help, or if you live in an institution. There are other situations as well which may qualify you for a SEP.

Note that if you are enrolled into a Part C (MA) plan, you can sign up for a standalone Part D plan only if your MA plan is a PFFS plan, MSA plan or Medicare Cost plan without prescription drug coverage. You can of course enroll into an MA-PD plan which includes prescription drug coverage.

Out-of-pocket Costs

PDP plans have a direct or indirect monthly premium, based on whether it is a standalone plan or bundled with a Medicare Advantage plan. You can lower your out-of-pocket costs by using preferred pharmacies and by using generics instead of brand name drugs.

If your modified adjusted gross income (MAGI) is above a certain amount, you may have to pay a Part D IRMAA (income-related monthly adjustment amount) to Medicare (not to the Plan). This amount varies based on income tier and could be upto $76.40 per month during 2023.

Apart from a monthly premium, prescription drug plans may also have an yearly deductible which you must pay before your drug plan begins to pay its share of the costs. If bundled with an MA plan, the PDP portion of the plan may have a separate deductible applicable to prescription drugs.

For any drug covered by the plan, there is usually a copayment/coinsurance also involved, which is your share of the transaction cost. Drugs may follow a tiered cost structure based on the plan's formulary.

Coverage gap aka ‘Donut Hole’

There used to be a gap in prescription drug coverage called the 'donut hole'. PDP plans offered limited or no coverage during the donut hole. Driven by legislation, the 'donut hole' had been shrinking every year and effective 2020, it has practically disappeared for covered brand name and generic drugs.

A beneficiary will now pay 25% of the cost of covered brand name or generic drugs and the pharmacy dispensing fee, while in the 'donut hole', which is the same as before hitting the 'donut hole' or coverage gap (without the pharmacy dispensing fee). Drug manufacturers and Plans cover the remaining 75%.

Formulary

A PDP plan’s formulary is the inventory of drugs it covers categorized into various tiers. While selecting a PDP plan, make sure your drugs are covered by the plan's formulary. Otherwise you will have to bear the full cost of drugs which are not covered.

Medicare regulations mandate that Part D or PDP plans cover all or substantially all drugs in six categories: antidepressants, antipsychotics, anticonvulsants, antiretrovirals (AIDS treatment), immune-suppressants and anticancer. A formulary must have at least two drugs within each therapeutic category.

A formulary’s drugs usually follow a tiered structure based on whether it is a generic, brand name drug, or specialty medicine. The tier a particular drug falls into usually decides your share of the cost of that drug. You generally pay the least for generics.

CREDITable coverage

If you have alternative drug coverage e.g. through your employer, and this coverage is as good as the Medicare drug benefit, it is considered ‘CREDITable coverage.' It may be a good idea to verify whether your alternate coverage, if any, qualifies as ‘CREDITable'. You may think it is but Medicare may have a different opinion.

If CREDITable, you may continue with this alternate coverage without enrolling in a PDP plan. No late enrollment penalty will be assessed when you decide to sign up for a Medicare drug plan later, provided you were covered by ‘creditable coverage’ till that time.

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Remember that you cannot choose just any combination of Parts and Plans. Let Lighted Road Insurance guide you step-by-step through the Medicare ecosystem and help you in selecting the right plan(s) for your needs.