When Medicare Part D (the "D" stands for "drugs") rolled out in Jan. 1, 2006, only 661,000 were signed at the start, according to the U.S. Social Security Administration. By 2015, more than 39 million Medicare beneficiaries were enrolled in Part D plans, according to a report by the Henry J. Kaiser Family Foundation. Eligible individuals can enroll in Part D through stand-along prescription drug plans (PDPs) if they are on traditional Medicare or get these benefits via Medicare Advantage prescription drug (MA-PD) plans that include drug coverage. Assistance in paying for Part D is available for low-income beneficiaries.
TUTORIAL: Introduction to Insurance
Navigating your way through the program begins with a review of the 160-page, 2016 document "Medicare & You," which is up from 92-pages in 2006. 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 government-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?)
Wading Through the 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.
Understanding the Costs
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. For more, see How to Pick the Best Medicare Part D Plan for You.
Regardless of which plan you choose, it will cost you money. Some plans charge a fee on top of the $104.90 ($121.80 for new beneficiaries) standard Medicare Part B monthly fee (2016 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 (costs are for 2016), enrollees pay a $360 deductible and then 25% of prescription drug costs until annual out-of-pocket costs reach $3,310. You pay any costs over that figure until your expenses reach $4,850 (2016 figure). 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, these costs can devastate your finances.
When you reach $4,85o in covered costs, catastrophic insurance coverage will pay the bulk of future costs, minus whatever coinsurance amount or copayment your plan requires. 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. Click here to access the Medicare Plan Finder at Medicare.gov.
Watch for Sharks
Since Medicare Part D is so confusing and there are so many decisions to be made, consultants of all types sprang up to provide "assistance" when the program launched. Salesmen with insurance companies may try to sell you expensive plans. 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 senior center if you don't have internet access. You should find the www.medicare.gov site useful.
- Call 1-800-MEDICARE. You won't be told what to choose, but you can get answers to other questions.
- Look for state assistance programs – some of them will help you enroll.
- If you take a large number of prescription drugs, look for a plan that does not have a doughnut hole, or investigate whether multiple plans will help 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 (Oct. 15 to Dec. 7).