Medicare Part D
What is Medicare Part D
Medicare Part D plans, or Medicare Prescription Drug plans, provide the prescription drug coverage that is not included in Medicare A and B, certain Medicare Cost Plans, Medicare Private Fee-for-Service (PFFS) Plans and Medicare Medical Savings Account (MSA) Plans. In order to get Medicare Part D coverage, you must join a plan run by an insurer or another private company approved by Medicare. Medicare Part D plans can vary in cost and drugs covered. At HealthPocket, you can use our Medicare Plan Comparison Tool to find the right Medicare Part D plan in order to minimize your out-of-pocket Medicare drug costs.1
Out of Pocket Costs for Medicare Part D
An individual enrolled in any Medicare Part D plan will incur out-of-pocket costs each year associated with their Prescription Drug Plan:
Typically, consumers pay a monthly premium for Medicare part D plans. If you make above $85,000 individually or above $170,000 jointly with your spouse, you will have to pay an additional fee on top of your monthly Medicare Part D premium based on the following table.2
|Yearly 2012 Income Filing as Individual:||Yearly 2012 Income Filing Jointly:||You Pay:|
|$85,000 or less||$170,000 or less||Your Plan Premium|
|above $85,000 up to $107,000||above $170,000 up to $214,000||$12.10 + Your Plan Premium|
|above $107,000 up to $160,000||above $214,000 up to $320,000||$31.10 + Your Plan Premium|
|above $160,000 up to $214,000||above $320,000 up to $428,000||$50.20 + Your Plan Premium|
|$50.20 + Your Plan Premium||above $428,000||$69.30 + Your Plan Premium|
HealthPocket recently reviewed Medicare’s landscape data for stand-alone prescription drug plans. The research indicated that premiums, on average, remained stable for the most recently released drug plans ($53.80 for 2014 versus $53.74 for 2013).
A deductible is the amount a consumer must pay before their Medicare Part D Plan begins to pay its share of drugs covered by the plan. The list of drugs covered by a plan is also referred to as a plan’s drug formulary. Part D Plans can have different annual deductibles (some plans don't have any) but all Medicare drug plan deductibles have a cap (in 2014, the maximum annual deductible is $310).3
Copayment & Coinsurance
After you have paid the deductible, you generally must pay an amount for each of your prescriptions, either through a copayment or coinsurance. Coinsurance means you pay a fixed percentage of the drug cost whereas a copayment means you pay a set amount for each prescription. Certain Medicare Part D plans have varying levels of copays or coinsurance, depending on the type of drug.4 For example a plan could have a $6 copayment for a one-month supply of a generic drug, but 25% coinsurance for specialty drug prescriptions.
Medicare Part D Coverage Gap
The Medicare Part D Coverage Gap (a.k.a. the Medicare Part D Donut Hole) is a period in which the plan covers a lower percentage of costs for prescription drugs. Most Medicare Part D plans have a coverage gap. However people with Medicare who are also enrolled in the Extra Help program do not enter the coverage gap.5 Extra Help decreases certain cost-sharing factors such as premiums and deductibles for those who qualify.
In 2014 Medicare Part D enrollees will fall in the coverage gap when they and their plan together have spent at least $2,850 on covered prescription drugs. When an enrollee is in the coverage gap, they will pay 47.5% of the costs for brand-name prescription drugs in 2014. However both the amount the enrollee pays for the drug and the drug manufacture’s discount payment will count toward total out-of-pocket costs for the purpose of exiting the coverage gap.
For generic drugs enrollees will have to pay 72% of the price in 2014 during the coverage gap. However the coinsurance that enrollees pay for generic drugs in the coverage gap will decrease every year until in 2020, when it will be reduced to 25%. Only the amount the enrollee pays for generic drugs will count toward their total out-of-pocket costs for the purpose of exiting the coverage gap. In 2014 the coverage gap ends when the enrollee has paid at least $4,550 in out-of-pocket costs.
Once enrollees have paid at least $4,550 in out-of-pocket costs (including the discount payment that the drug company pays for brand-name prescription drugs during the coverage gap), the enrollee will be in catastrophic coverage. Once they are in catastrophic coverage, enrollees pay a small coinsurance or copayment for covered prescriptions for the remainder of the year. For example a plan could have cost-sharing during catastrophic coverage that is the greater of 5% coinsurance for all drugs or $2.55 copayments for generic drugs and $6.35 copayments for other drugs.6
Part D Late Enrollment Penalty
A late enrollment penalty is added to an enrollee’s Medicare Part D premium if there are at least 63 days in a row after the enrollee’s initial enrollment period is over that the enrollee does not have qualifying coverage for prescription drugs such as Medicare Part D. Enrollees that qualify and get Extra Help do not have to pay the Part D late enrollment penalty.
In 2014 the monthly Part D late enrollment penalty is calculated by multiplying 1% of $32.42 (the national base beneficiary premium in 2014) times the number of whole months that the enrollee was eligible for creditable prescription drug coverage but did not have it.7
Medicare Part D 2014 Plans
The Department of Health and Human Services (HHS) projected that the average premium for a Medicare Part D plan in 2014 would be approximately $31 per month. In the years 2011, 2012, and 2013, the average premium for a prescription drug plan was projected to be $30.8 For comparison HHS projected that the average Medicare Advantage premium would be $32.60 in 2014.9
Moreover a HealthPocket study showed there were fewer drugs on average within Medicare Advantage formularies (i.e. list of covered drugs) for 2014 compared to 2013 Medicare Advantage formularies. Some plans place restrictions on their covered drugs. The three most common restrictions were:
- Quantity limits
- A requirement for a doctor to gain approval from a Medicare drug plan for an expensive medication before the plan pays for the drug
- A requirement to try less expensive medications in the same drug class before a more expensive drug within the class is approved for coverage
It is important to confirm that an enrollee’s medications are listed within a plan formulary prior to enrolling. If the drugs are not listed, the enrollee must pay the full cost of the drugs out-of-pocket and the amount paid will not be considered for protection from catastrophic drug costs.
Another more recent HealthPocket study determined the highest and lowest cost 2014 Part D plans in each state and DC based on the combined costs of the top 50 drugs by units sold. The study found that on average the highest cost Part D plan in each state had 109% greater combined costs than the lowest cost Part D plan in the same state. Moreover the highest cost Part D plan in the nation had 155% greater combined costs than the lowest cost Part D plan in the nation.
The Part D plan with the lowest cost in the most states was the Humana Enhanced (PDP) (lowest in 26 states and covered 48 of the top 50 drugs), while the plan with the highest cost in the most states was the Aetna Medicare Rx Premier (PDP) (highest in 37 states and covered 41 of the top 50 drugs). On average the lowest cost option in each state covered 47.6 of the top 50 drugs, while the highest cost option covered 39.9 of the top 50 drugs.
Medicare Part D Frequently Asked Questions
How can you find and join a Medicare Part D plan?
First you should have Original Medicare Parts A and B. In order to compare costs for Medicare Part D plans, you can use a plan finder such as HealthPocket’s Medicare plan comparison tool. This comparison tool enables you to enter your prescriptions and estimate your total costs including premiums and prescription cost-sharing for each Medicare Part D plan that is available to you.
Once you have chosen which plan you want to purchase, there are several ways to buy the plan: you can enroll on the Medicare Plan Finder, use the insurer’s website, call the insurer, call 1-800-MEDICARE (1-800-633-4227), or use a paper enrollment form.
If I am eligible for Medicare Part D, am I required to purchase a Part D plan?
No one is required to have Medicare Part D coverage. However, if someone does not have creditable drug coverage starting by when they are first eligible for Medicare, then they may have to pay a Medicare Part D late enrollment penalty if and when they ever decide to buy a Medicare Part D plan. Other sources of creditable drug coverage besides Medicare Part D plans include Medicare Part C (Medicare Advantage) plans with drug components and plans through current or former employers or unions.
What are straddle claims and how do they work?
A straddle claim crosses two adjacent drug coverage periods. Straddle claims occur in three cases: crossing from the deductible period to the initial coverage period, the initial coverage period to the coverage gap, and the coverage gap to the catastrophic coverage period. Straddle claims that cross from the deductible period to the initial coverage period are divided into parts: the first part covers the remaining cost in the deductible period so the beneficiary pays the entire cost of the first part, while the second part is subject to initial coverage period cost-sharing rules.
Straddle claims that cross from the initial coverage period to the coverage gap are also divided into parts so that the first part covers the remaining cost in the initial coverage period and is subject to the rules of the initial coverage period, while the second part is subject to the cost-sharing rules of the coverage gap. Furthermore the dispensing fee must fall as much in the initial coverage period as possible for straddle claims between the initial coverage period and coverage gap.
Straddle claims between the coverage gap and the catastrophic coverage period are also divided into two parts so that the first part is subject to the rules of the coverage gap and covers the remaining out-of-pocket costs in the coverage gap, while the second part is subject to the rules of catastrophic coverage. As with the other straddle claims that intersect the coverage gap, the dispensing fee must fall as much out of the coverage gap as possible.
It is important to note that cost-sharing for any part of a straddle claim can only be as high as the total cost of the part. Your total cost-sharing for any drug prescription cannot exceed the actual prescription cost including the drug cost, the dispensing fee, and taxes.