Individuals 65 and older or those who have been receiving Social Security disability payments for 2 or more years can qualify for Medicare. Medicare is a program sponsored by the U.S federal government that subsidizes medical and prescription drug costs for its beneficiaries. Medicare plans cover both hospital services (Part A) as well as medical services and supplies not covered by hospital insurance (Part B). However, many beneficiaries choose to purchase supplementary plans that cover additional expenses such as prescription drug costs.
There are two methods to get Medicare prescription drug coverage, either by obtaining a Medicare Advantage Plan (Part C) with Prescription Drug Coverage (sometimes called “MA-PDs” ) or obtaining a Medicare Prescription Drug Plan (Part D) also known as a “PDP”. In order to qualify for either type of Medicare drug plan, an individual must first be enrolled for benefits under both Medicare Parts A and B. Medicare Advantage Plans with prescription drug coverage are often called “MAPD” plans.
Every Medicare drug plan has a list of covered drugs called its formulary. The Centers for Medicare and Medicaid Services requires Medicare drug plans to include at least two drug options in each of 148 drug categories.1 Nearly all drugs in six classes (including antidepressants, antipsychotics, anti-convulsants, immuno-suppressants, as well as cancer, AIDS, and HIV drugs) must be covered.
Some drugs are excluded under Medicare drug coverage.2 These include over-the-counter drugs (even if prescribed by a physician), drugs for weight loss or gain even if used to treat morbid obesity (drugs used to treat weight loss due to another disease are included), cough and cold preparations without underlying medical indication, fertility drugs, erectile dysfunction drugs, cosmetic and hair growth drugs, drugs purchased from another country, vitamin and mineral supplements, and drugs covered under Medicare Part A or B.
The drugs listed in each formulary are grouped into tiers with different costs. Generally drugs in lower tiers cost less than drugs in higher tiers. In some cases if you need to take a drug in a higher tier instead of a similar drug in a lower tier, you and your prescriber can ask the plan to make an exception so that you would pay a lower copayment for the higher-tier drug.3
Medicare drug plans may stipulate the following rules:
If it is medically necessary for you to receive a commercially available vaccine that is not covered under Medicare Part B (medical insurance), then your Medicare drug plan must cover the vaccine. If you receive drugs in a hospital outpatient setting that are not covered by Medicare Part B, then your Medicare drug plan may cover these drugs, but first you may have to pay for the drugs out-of-pocket and then submit a claim to your insurer to obtain a refund.
Furthermore some Medicare enrollees receive prescription drugs in the mail through an automatic refill service. In the past some Medicare drug plans did not continue to verify that enrollees still needed to receive their automatic refill prescription, creating excess drug waste which led to superfluous additional costs for enrollees. If you are an enrollee receiving any unnecessary prescriptions through an automatic refill service, you can call 1-800-MEDICARE to resolve this issue.4
Medicare Part C plans are plans that cover Parts A and B as well as additional healthcare services such as prescription drugs, vision, hearing, or dental. There are four main types of Medicare Part C plans: HMO (Health Maintenance Organization), PPO (Preferred Provider Organization), PFFS (Private Fee-for-Service), or SN (Special Needs). Out of these four, HMO and PPO plans are the most common.
HMO plans use a network for local doctors and hospitals and generally do not cover services obtained outside of the network except for certain emergencies. PPO plans allow members to choose among in and out-of-network providers but generally services obtained outside of the network will incur higher costs for an enrollee. PFFS plans determine how much the plan will pay for healthcare services and the enrollee can receive services from any doctor or hospital as long as the doctor or hospital agrees to treat the enrollee and to accept the payment.
There are three categories of special needs plans: those for people who qualify for both Medicare and Medicaid, those for people living in institutions such as nursing homes, and those for people with specific chronic diseases. These plans are adapted to best meet the needs of the beneficiaries.
A HealthPocket analysis of 2020 Medicare Part C plans found that the average premium for Medicare Advantage plans will be slightly lower in 2020 as compared to 2019 ($63.00 versus $65.00). This average takes all U.S. Medicare Advantage plans into consideration and does not weight the averages by enrollment. 60% of these 2020 Medicare Advantage plans will have a $0 premium (though enrollees must continue to pay their normal Medicare Part B premium obligations). The average drug deductible amount will rise marginally to $170.11 in 2020 Medicare Advantage plans from $166.41 in 2019.
Medicare Part D plans are standalone prescription plans offered by private insurance companies that are approved by Medicare. Since Medicare Part D plans can vary in terms of costs and drugs on their formularies, you can use HealthPocket’s Medicare plan comparison tool to find a Medicare Part D plan that will cover your drugs and minimize your costs.
Out-of-pocket costs for Medicare Part D plans can be separated into several categories: premiums, deductibles, copayment/coinsurance, costs in the coverage gap, and catastrophic coverage. Costs for Medicare Part D premiums increase with income, and enrollees may also have to pay a late enrollment penalty with their premiums if there is a period of 63 or more days in a row when they do not have creditable prescription drug coverage following the end of their initial enrollment period.
The deductible is the amount the enrollee pays for prescriptions before their plan will begin to cover any prescription drug costs. In 2020 Medicare Part D deductibles cannot exceed $435. After paying the full deductible, enrollees will pay a copayment or coinsurance for each prescription until reaching the coverage gap, when the enrollee and the plan together have spent at least $4,020 on covered drugs.
In the coverage gap, enrollees pay 25% of the cost for brand-name drugs and 25% of the cost for generic drugs. For brand-name drugs the whole cost, including the discount the drug company pays, will count toward the enrollee’s out-of-pocket costs for the purpose of exiting the coverage gap. However for generic drugs only the enrollee’s spending will count toward their out-of-pocket costs.
In 2020 when the enrollee’s out-of-pocket costs exceed $6,350, they exit the coverage gap and enter catastrophic coverage. During catastrophic coverage enrollees pay a small copayment or coinsurance for covered prescriptions until the end of the year.5
With respect to Medicare Part drug plans, the U.S. average premium ($42.05) in 2020 will be less than a dollar more expensive than the average premium in 2019. The average deducible nationally will be around $74.96 more expensive in 2020 than was the case in 2019 ($345.36 versus $270.40).6 For more information about Medicare Part D plans, see HealthPocket’s page on Medicare Part D plans.
Enrollees with limited income and resources may receive Extra Help with paying their Medicare drug plan costs. Extra Help can decrease the premium and deductible costs for a Medicare drug plan, and enrollees with Extra Help do not enter the coverage gap. For people that qualify for Extra Help in 2020, prescription costs will not exceed $3.60 for covered generic drugs and $8.95 for covered brand-name drugs.
Enrollees may qualify for Extra Help in 2020 if their income is at most $19,140 for an individual or $25,860 for a married couple, and their resources are at most $14,610 for an individual or $29,160 for a married couple. Qualifying resources include money in checking or savings accounts, stocks, and bonds, but do not include homes, one car, burial plots, burial expense savings up to $1,500, furniture, and other household or personal items. People can automatically qualify for Extra Help if they obtain either full Medicaid coverage, help from the state Medicaid program paying Medicare Part B premiums, or Supplemental Security Income benefits.6
The Medicare Annual Enrollment period runs every year from October 15 to December 7. Applications for changes in Medicare coverage must be received by the end of the period and go into effect on the first day of the following year. During the annual enrollment period enrollees can enroll in Medicare Part C instead of Original Medicare (parts A and B), enroll in a Medicare Part D plan, switch Medicare Part D plans, switch Medicare Part C plans, switch from Medicare Part C to Original Medicare and a Part D plan, or disenroll from a Medicare Part D plan. If an enrollee does not disenroll from a Medicare plan, their coverage will automatically renew from year to year. There is also a Medicare Advantage Disenrollment Period between January 1 and February 14 when enrollees can drop their Medicare Advantage plans and switch to Original Medicare, with the option of joining a Medicare Part D plan.7
A person’s Initial Enrollment Period for Medicare Parts C and D occurs in the seven-month period based on the month when they become eligible for Medicare drug coverage. For persons turning 65 years old, the Initial Enrollment Period starts 3 months before the month they turn 65 and ends 3 months after the month they turn 65. For persons under age 65 that are eligible for Medicare because of a disability, the Initial Enrollment period starts 3 months before their 25th month of receiving Social Security or Railroad Retirement Board disability benefits, and ends 3 months after the 25th month. 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 creditable prescription drug coverage, then they will have to pay a late enrollment penalty if they decide to enroll in a Medicare drug plan.8
Some people can also enroll in Medicare or switch plans during special enrollment periods. Special enrollment periods can occur when you change where you live (e.g. you moved to a new address that is not in the old plan’s service area or you were just released from jail), you lose your current coverage (e.g. you are no longer eligible for Medicaid or you lose employer coverage), you have a chance to enroll in other coverage (e.g. from an employer, union, TRICARE, or VA coverage), or your plan changes its contract with Medicare. In other special situations, such as being eligible for both Medicare and Medicaid or qualifying for Extra Help, the enrollee can enroll, switch, or disenroll from a Medicare drug plan anytime.9
Is it mandatory to enroll in Medicare Part D?
It is not mandatory to get a Medicare Drug Plan when you are first eligible for Original Medicare but if you decide in the future that you want to enroll in an Medicare Part D plan you may have to pay a late enrollment penalty if you go without creditable prescription drug coverage for 63 continuous days or more. Creditable coverage means the plan is expected to pay on average as much as the standard Medicare prescription drug coverage would.
I didn’t join a Medicare drug plan when I was first eligible for Original Medicare. How much will my late enrollment penalty be?
To estimate your penalty you multiply 1% of this year’s national base beneficiary premium (2020: $32.74) times how many uncovered months you were eligible but did not join a prescription drug plan and did not have creditable prescription drug coverage. The calculated penalty is rounded to the nearest ten cents. For example, you did not join a PDP for 31 months and went without creditable prescription drug coverage during that period you would pay an additional $10.20 per month on top of your premium (1% x 31% x $32.74 = $10.15). After you join a Medicare drug plan, your plan will tell you if you have to pay a penalty and you may have to pay the penalty every month you have a Medicare drug plan. Your penalty will be waived once you reach the age of 65 if you had to pay a late enrollment penalty before you turned 65. Also, if you get Extra Help you don’t have to pay the penalty.
Which Medicare Prescription Drug Plan (PDP) is the best choice for me?
The PDP that is the best choice for you has the lowest total costs including premiums and out-of-pocket costs for the specific prescription drugs you take. Some plans may have the same drug in different tiers with different cost-sharing amounts, so it is important to compare plans with your specific prescription drugs before you decide which one to enroll in. HealthPocket’s Medicare comparison tool can help you estimate costs for PDP and MAPD plans in your region.
What should I do if my spouse or I have prescription drug coverage from a current/former employer or union?
You should speak to your current benefits administrator or human resources representative to discuss what the impact enrolling in a MAPD or PDP will be on your current coverage. In some cases you can keep both coverages while in other cases you may lose some or all of your union or employer-sponsored coverage. Every year employers and unions that provide prescription drug coverage are required to send you notification about how your current coverage compares to Medicare’s basic prescription drug coverage. You can use this information to decide if it is cheaper for you to join a Medicare drug program instead. Keep your notices in case you need to use them as proof of creditable prescription drug coverage in the future.
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