Getting Through The Medicare Part D Maze

By James E. McWhinney AAA

In an effort to provide prescription drug coverage to its citizens, the U.S. government has rolled out a plan it calls "Medicare Part D". The "D" stands for "drugs", but critics say it should stand for "disaster". Of the seven million people eligible for the coverage, which began Jan 1, 2006, only 661,000 were signed at the start, according to the U.S. Social Security Administration. The reason for this low participation rate and the many problems associated with Medicare Part D can be summed up in a single phrase: The plan is far too complicated. Here we shed some light on the changes ushered in by Medicare Part D, the problems with the new plan and the actions you can take to sort through all the information and choose the coverage that is right for you.

TUTORIAL: Introduction to Insurance

Too Much Research
Navigating your way through the program begins with a review of the 136-page, 2011 document "Medicare & You," which is up from 92-pages in 2006. As the booklet notes, "…everyone with Medicare must make a decision about their drug coverage." While the booklet provides no information about plan-specific coverage, it does give you a place to start your research. (To learn how to make your Medicare coverage as reliable as possible, check out Filling In The Medicare Gaps.)

The first step is to figure out where you fit in the grand scheme of things and what options are available to you. Most people fit into one of the five categories below, based on their current medical coverage:

  • Original Medicare Plan Only - The original Medicare plan does not provide prescription drug coverage. If you have Medicare, but no drug coverage, this is your chance to get coverage. You can do so by joining a Medicare drug plan, joining a Medicare Advantage Plan (which offers medical and drug coverage) or joining another plan (such as a state-specific plan or low-income plan).
  • Medicare and Medigap Supplemental Insurance - Medigap policies for prescription drug coverage stopped being sold after 2005. You can keep your current coverage, but Medicare recommends that you join a plan that offers a Medicare drug benefit and then drop your supplemental policy.
  • Employer/Union-Provided Prescription Drug Coverage - Your coverage provider should send you a comparison that highlights the differences between your current coverage and the standard Medicare prescription drug coverage. If you are happy with your current coverage, you can keep it and don't need to take action. But if you are dissatisfied with your current coverage, you need to find new options.
  • Medicare Advantage Plan - The menu of plans and coverage options has expanded dramatically. Comparison shopping is completely up to you.
  • Medicare and Medicaid - If you have coverage from Medicare with Medicaid drug coverage, you will automatically get comprehensive prescription drug coverage from Medicare. You need to choose a prescription plan or one will be chosen for you. (Both programs are goverment-sponsored and share similar names, however, they are designed for different purposes. To learn more, check out What's The Difference Between Medicare And Medicaid?)

Too Many Choices
Regardless of your current prescription drug coverage, you are encouraged to review the full range of choices that may be available to you. It is a daunting task requiring hours of research. For example, if you live in Pittsburgh, Pennsylvania, located in Allegheny County, you'll find 20 firms selling more than 50 prescription drug plans - this includes the approximately 25 plans offered through Medicare, as well as the various "creditable" plans that are offered outside of Medicare. Choices will vary by county, and some areas offer more than 100 choices. (Advancing age brings increased health risks. Learn how your savings could be lost to medical expenses; read Failing Health Could Drain Your Retirement Savings.)

These are the basic categories from which you must choose:

  • Original Medicare and a Medicare Prescription Drug Plan - Participants pay one premium for the Medicare and one for the drug plan.
  • Medicare Advantage Plan - Participants get drug and medical coverage from one plan for one premium. Plans come in a dazzling array of choices, including health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Many plans offer multiple tiers, with a wide variety of coverage and premiums.
  • Other Medicare Plans - Plans such as the Program of All-Inclusive Care for the Elderly (PACE) provide drug and medical coverage but are not considered Medicare Advantage plans.
  • Medicare Private-Fee-for-Service - This is private medical insurance that is accepted by Medicare-approved doctors. This insurance may or may not cover prescription costs.

When considering various plans, your general strategy should be to look at the cost, coverage and convenience of every plan before making a choice. The plan should fit into your budget and also meet your specific drug needs. You also need to determine how convenient it will be to get prescription drugs since different plans use different pharmacies and some plans offer added conveniences, such as a mail-order option.

Too Little Coverage and Too Many Changes
Each plan has a "formulary" - otherwise known as a "list of drugs". There is no guarantee that the drugs you need are on the list, so you must check each list. Of course, these lists can change every year, so the drug coverage and co-pay that you have in one year may change in the next. Therefore, you may need to reevaluate your coverage every year to determine whether or not your plan is still the best choice for your needs.

Too Many Expenses
Regardless of which plan you choose, it will cost you money. Some plans charge a fee on top of the $115.40 standard Part B monthly fee (2011 rate); others include that Part B fee in their premiums. Premiums vary widely based on coverage. In addition to plan premiums, most plans charge a deductible for prescriptions.

Under the standard Part D program, enrollees pay a $310 deductible and then 25% of prescription drug costs until annual out-of-pocket costs reach $2,840. Any costs over that figure, up to $6,448, are paid 100% by the Part D enrollee. This gap is known as a "doughnut hole," since you get something on each side, but nothing in the middle. If you require a large number of prescriptions, or a small number of expensive prescriptions, the costs can devastate your finances.

Private insurance plans are expected to cover around $2,500 in drug expenses in 2011. After that, you pay all costs until your expenses reach $4,550, at which point catastrophic insurance coverage will pay 95% of future costs. Of course, not all plans are created equal. Some plans are better than others - with different-sized holes or no doughnut hole at all.

Like Medicare Part B, Medicare Part D comes with built-in penalties for signing up after the initial enrollment period. To figure out your true costs, you need to know when you are going to sign up, which plan you will choose, which prescription drugs you will take and how often you will take them.

Too Many Sharks
Since Medicare Part D is so confusing and there are so many decisions to be made, consultants of all types have sprung up to provide "assistance." Salesmen with insurance companies smell blood in the water and have launched a massive effort to sell expensive plans to the elderly. Since these plans often fall into the Medicare Private Fee-for-Service category, it can be difficult to tell them apart from Medicare Advantage plans.

You're not alone if you think that sorting through this alphabet soup is a nightmare. You need to know how often you plan to get sick, what drugs you will need to take, how much of those drugs you will need, how much the insurance companies pay for those drugs and how much you can afford to spend.

Here are some steps to make this difficult process easier:

  • Get the "Medicare & You" booklet.
  • Figure out how much you can afford to spend.
  • Make a list of the drugs you are currently taking.
  • Get online - go to the library or a seniors' center if you don't have internet access. You should find the site useful.
  • Call 1-800-MEDICARE. They won't tell you what to choose, but they can answer other questions.
  • Look for state assistance programs - some of them will help you enroll.
  • Check your local newspaper - many have published excellent articles investigating the choices available in their local areas.
  • If you take a large number of prescription drugs, look for a plan that does not have a doughnut hole, or get multiple plans to cover the gap.
  • Talk to your pharmacist. He or she fills prescriptions every day and may be able to name the plans that provide the best coverage.

The Bottom Line
Be patient, prepare for a long research project and accept the fact that you will need to review your coverage every year. Choosing coverage is an important decision, so don't let a salesman pressure you into making a choice. Also, after initial enrollment, you have a six-week window each year to change plans (Nov 15 to Dec 31).

For further reading, see Medicare: Defining The Lines and The Evolution Of LTC-Insurance Plans.

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