Medicare Part D basics
Original Medicare does not cover or subsidize the cost of prescription drugs. Medicare Part D, also called Prescription Drug Plans or PDP, is a Medicare program designed to help seniors finance the high costs of prescription drugs and premiums.
What it covers
Medicare Part D encompasses a variety of drug plans—each of which covers its own set list of drugs (called a formulary). The cost of a drug plan varies based on which types of drugs you need and whether you use a pharmacy in your plan’s network.
How to get it
There are two ways you can receive prescription drug coverage: with Original Medicare (as Part D) or bundled into a Medicare Advantage plan. If you join a Medicare Advantage plan, your prescription coverage will usually be included in your monthly fee. You cannot be enrolled in a PDP plan and Medicare Advantage at the same time.
Prescription drug coverage is voluntary; if you choose to not enroll in a PDP, your Original Medicare coverage will not be affected in any way. But, if you do not enroll and go for any continuous period of 63 or more days after your Initial Enrollment Period is over without prescription drug coverage, you may owe a late enrollment penalty. It is recommended that you sign up for Medicare Part D as soon as you’re eligible.
After you first enroll, you are able to make changes annually to your PDP coverage. Each year, insurance carriers that offer Part D plans examine their performance and make necessary adjustments, including changing actuary tables and formularies, premiums, and pharmacies. Comparison shopping PDP plans annually gives you the opportunity to make sure your prescriptions are still covered at the best price.
Medicare Part D plans charge a monthly fee (premium) that varies by plan. The 2019 Part D base beneficiary premium (based on bids submitted by PDPs and Medicare Advantage plans with prescription coverage) is $33.19. But, most people opt for additional coverage and the overall average of Part D premiums is $41.21.
There is significant variation in the actual premiums people pay for Medicare Part D; in 2018, plans ranged from under $11 a month to $156 a month, depending on coverage and location. In 2019, Part D beneficiaries with higher incomes will also pay an income-related premium surcharge, ranging from $12.40 to $77.40 per month.
In addition to the premium, PDP plans have a slightly confusing cost structure for out-of-pocket drug costs. Here is the breakdown of the most basic model for Medicare Part D costs in 2016:
Part 1: Deductible
Beneficiaries are responsible for 100 percent of this initial fee, which is set by their plan. Only 52 percent of PDP plans charge the full $415 deductible.
Part 2: Initial coverage
The beneficiary will pay a certain amount for each prescription filled. The per-prescription cost is determined by the insurance carrier, but the overall out-of-pocket limit is $3,820 per year across all plans. During this time, beneficiaries pay 25 percent of prescription costs.
Part 3: The Coverage Gap or Donut Hole
After the initial coverage limit is met, beneficiaries cover 37 percent of generic drug out-of-pocket costs and 25 percent of brand-name drug out-of-pocket costs, as of 2019. 25 percent represents a closing of the donut hole because it matches the percentage in the initial coverage period. In 2020, the gap for generic drugs will also be closed (at 25 percent).
Part 4: Catastrophic coverage
This coverage comes into effect when a beneficiary has spent over $5,100 for prescription drugs. It greatly reduces the cost of such medications (beneficiaries pay 5 percent). Out-of-pocket totals reset at the end of each year.
Because PDPs are based on percentages, it’s important to try and save as much money on prescriptions up front, which will lower your overall cost. Learn how to save more on prescription drugs.
If you feel like you may benefit from help managing your prescriptions, Medicare has Medication Therapy Management programs available.
Enrolling in Medicare Part D
You can enroll in a Medicare Part D plan during your Initial Enrollment Period for Part D—which for most people begins three months before their 65th birthday and ends three months after, as long as they’re enrolled in Medicare Part A and B. If you do not sign up for Part D when you are first eligible, you may have to pay a Part D late enrollment penalty, which is an added monthly cost to your Part D premium.
After you initially enroll in a PDP, you do not need to reenroll every year. But, you are able to change your plan annually during the Medicare Annual Enrollment Period (AEP). During this time, you can comparison shop PDP plans and find a better fit for your changing needs. This is an option for beneficiaries because plans change their benefits annually; AEP is a chance to manage those changes.