Medicare Part D is for prescription drugs.
It’s no secret that prescription drugs can be really expensive—especially if you have a chronic illness. For those of you who are new to Medicare, prescription drug expenses don’t only include the cost of your prescriptions. There are insurance premiums, deductibles, co-pays and co-insurance that need to be added up to arrive at your true annual costs. I recommend that you get into the details, check the numbers and learn how much your prescription drugs and Part D plan will cost every year.
How Medicare Part D Works
During your initial enrollment period (usually at age 65), you will choose a Medicare-approved prescription drug plan. These plans charge a monthly premium and will help pay for prescription drugs based upon Medicare rules for cost sharing.
A Medicare Part D prescription drug plan is only going to pay for a portion of the costs. The remaining costs are shared with you via deductibles, co-insurance and co-payments. The costs are shared on three levels based upon the out-of-pocket costs you pay during the plan year (Even if you reached catastrophic coverage level this plan year, this total resets to $0 at the beginning of every plan year).
For Medicare Part D, enroll within your initial enrollment period. If you go for 63 continuous days without creditable prescription drug coverage, you face a 1% per month penalty for every month you were not enrolled in a Part D approved plan. For those who currently take few or no prescription drugs, understand the penalties if you don’t sign up for a plan during initial enrollment. (For related reading, see: Understanding Medicare Part D Risks.)
It’s good to know you are not locked in to one plan forever. Every year during annual open enrollment you can "shop" and, if you need to, change your prescription drug plan.
3 Prescription Drug Payment Levels
- Initial Stage: <= $3,700 in Out of Pocket Costs – After you’ve paid applicable deductibles, co-pays and co-insurance, Medicare Part D will pay its share of prescription drug costs up to $3,700 of out-of-pocket costs of per year.
- In the Doughnut Hole (Coverage Gap): >= $3,701 and </= $4,950 in Out-of-Pocket Costs – You reach the so-called doughnut hole (also referred to as the coverage gap) when your annual out-of-pocket drug costs are between $3,701 and $4,950. During this coverage gap you will pay approximately 51% of the cost of generic drugs and 40% of the cost of name-brand drugs. In this stage, deductibles, co-payments, co-insurance and your manufacturer discount premiums all count toward the coverage gap.
- Catastrophic Coverage: >= $4951 in Out-of-Pocket Costs – The final stage of prescription drug coverage is known as catastrophic coverage. Starting at $4,951 of out-of-pocket prescription drug costs for the plan year, Medicare will begin paying again. You may still have a co-pay and/or co-insurance, but you will stay in this stage for the remainder of the plan year.
Your choices of Medicare-approved prescription drug plans and costs can vary by state and zip code. Enter your zip code on the Medicare website to find the Medicare-approved prescription drug plans available where you live. Follow steps one through four to reach detailed plan comparisons. The information from plan comparisons will give you much of the information you will need to make an informed decision. From the "Find a Plan" webpage, save your plan id and date. That way you won’t have to re-enter your prescription list every time you want to evaluate different plan options.
TIP: Not all prescription drugs are covered. Before enrolling in a plan, make sure all of your prescriptions are covered by your selected plan. (For related reading, see: How to Pick the Best Medicare Part D Plan for You.)
Be a Good Prescription Drug Consumer
Medicare Part D can be fairly complex. Some new Medicare enrollees are amazed at how much they will have to pay for their prescription drugs. It is good to know that if you qualify, there may be financial assistance available to help. Check the Medicare website to see if you qualify for assistance. And, if you aren’t already, now is the perfect time to become a really good consumer when purchasing brand-name prescription drugs. Whenever possible, ask your doctor to give you prescriptions for generic drugs. Generics can help reduce your prescription drug costs. (For related reading, see: 6 Ways Retirees Can Save on Prescription Drugs.)
It pays to evaluate your prescription drug plan every year. Annual open enrollment is the time to review your current plan to make sure you have the best, most cost-effective coverage for the upcoming year.
Recommended Medicare Part D Videos and Reading
- Medicare Overview and Part D Terms Explained
- Prescription Drug Plans Part D
- Choosing a Medicare Prescription Drug Plan
(For more from this author, see: Understanding the Basics of Medicare.)