Medicare Part D Basics

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What is Medicare Part D?

Part D is Medicare's prescription drug program and was designed to help cover the costs of prescriptions. It was introduced in 2003, as part of the Medicare Modernization Act and was officially available to the public in 2006.

Medicare Part D includes a variety of drug plans, each covering its own set of drugs. The list of drugs that a plan covers is called a formulary. The cost of drug plans depends on the types of drugs you need and whether your pharmacy participates in your plan’s network. There is  no standard monthly premium for Part D, as each drug plan sets its premiums every year.

Do I need to purchase a separate drug plan?

How Does Medicare Part D Work?

Medicare Part D is offered through dozens of insurance carriers, but there is a standard. The standard benefit requires several payments throughout a calendar year by the beneficiary. Here is the breakdown of the most basic model for Medicare Part D costs in 2021:

Deductibles

Deductibles vary between Medicare drug plans. No Medicare drug plan may have a deductible more than $445 in 2021. Some Medicare drug plans don't have a deductible.

Copayments/Coinsurance

Once you and your plan spend $4,130 combined on drugs (including deductible), you’ll pay no more than 25% of the cost for prescription drugs until your out-of-pocket spending is $6,550, under the standard drug benefit.

Coverage Gap or "Donut Hole"

Most Medicare drug plans have a coverage gap (also called the "donut hole"). This means there's a temporary limit on what the drug plan will cover for drugs.

Not everyone will enter the coverage gap. The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs. Once you and your plan have spent $4,130 on covered drugs in 2021, you're in the coverage gap. This amount may change each year.

Catastrophic Coverage

Once you've spent $6,550 out-of-pocket in 2021, you're out of the coverage gap. Once you get out of the coverage gap (Medicare prescription drug coverage), you automatically get "catastrophic coverage." It assures you only pay a small coinsurance amount or copayment for covered drugs for the rest of the year.

Medicare Part D Eligibility

The most suitable beneficiaries to enroll in Part D do not have any sort of drug coverage. To be eligible for Part D, you must be eligible to be insured by Medicare. In order to receive Part D coverage, you must enroll in a Part D plan. To enroll in a Part D plan, you must be eligible for Medicare Part A or B, though you do not need to be currently enrolled in either of these plans to qualify for Part D. The people who are enrolled in Medicaid will be enrolled in Medicare Part D by the government.

If you are eligible for Medicare Part D and enroll, you are granted eligibility to enroll in Medicare Supplement, which helps pay for premiums and other costs, but not prescription drugs.

Enrolling in Medicare Part D

To enroll in Medicare Part D, you must choose a Part D plan that works best for your needs. This is done by directly signing up at the Official Medicare website: https://www.medicare.gov/. From there you select the icon that reads “Find health & drug plan.” You will be asked basic prescription and location information when in the Drug Plan Finder. Once you find the drug plans for your needs, you are free to enroll online or by calling the number shown to connect with a Part D enrollment specialist.

It is best to enroll in a plan when you are first eligible for it, otherwise, you will pay higher premiums. Medicare has a 1% increase in the premium cost with every month you hold off enrollment. The period in which you are first eligible to enroll in Part D is known as the Initial Enrollment Period or IEP. If you do not enroll in a Part D plan during the IEP, you might not be able to join again until Fall Open Enrollment, which is from October 10-December 7.

The time frame for the IEP mimics that of Part B; it lasts for 7 months, which includes the 3 months before the month you officially became eligible for Medicare, the month of your eligibility and the 3 months following the month you became eligible.

Example: If your eligibility month is in June (because you turn 65 then), your IEP will run from March 1 to September 30 of that year.

How You’ll Receive Coverage by Enrollment Period:

Time of Joining a Part D Plan Coverage Kicks in on…
3 months before Medicare eligibility The month of your eligibility
During the month of eligibility The first month after enrollment
3 months after the month of eligibility The first month after enrollment

Medicare Part D Plans

There are various Part D plans available through private insurance companies that Medicare approves. Drug plans differ by region and your prescription drug needs. There are two types of coverage:

  • PDP- This is a stand-alone plan that provides drug coverage only. It is used by beneficiaries of health benefits that come from the traditional Medicare-free-for-service program. It can be used with Medicare Supplement to help pay off other costs like premiums and deductibles.
  • Medicare Advantage Plan- This plan subsidizes both drugs and medical services. It is used by beneficiaries who receive their Medicare benefits in a single package. This is done through a health maintenance organization (HMO) or a preferred provider organization, or PPO.

Every type of plan includes the following payments: deductibles, premiums, copays, and co-insurance. The costs of the plans differ, as do the specific prescription drugs they cover. Checking each plan’s formulary will help you avoid choosing a plan that doesn’t cover the drugs you need.

Medicare Part D Donut Hole

The notorious Part D donut hole is the coverage gap that strongly affects out-of-pocket prescription drug costs. The donut hole puts a restriction on how much your Part D plan will pay for covered drugs. Beneficiaries in the donut hole pay higher percentages for both brand name and generic drugs. Unfortunately, most Medicare Part D plans have these coverage gaps.

Not everyone enters the coverage gap and it depends on a variety of factors including cost-sharing expenses, type of drugs, drug costs and how much your plan pays for covered drugs. There is a greater risk of entering the donut hole for people with more expensive drugs, high copayments or co-insurance costs.

There are healthcare reforms such as government subsidies and manufacturer discounts that will offset the prices of a covered generic or brand-name medication. If you enter the donut hole, you automatically receive catastrophic coverage when your out-of-pocket spending reaches a certain limit.

Medicare Part D Timeline

2003- Congress passes the Medicare Prescription Drug, Improvement, and Modernization Act. Only inpatient hospital drugs are covered.

2006- Medicare launches Part D coverage for Medicare beneficiaries. It pays for outpatient prescription drugs.

2007- Medicare recipients have an average of 56 plan options, the peak of Part D plans.

2010- The Affordable Care Act enforced provisions to gradually close the donut hole.

2011- Most Part D Plans, 80% specifically, prefer pharmacies where retirees pay lower cost-sharing on drugs.

2015- The number of Medicare beneficiaries tips the scale at 55, 504,005 people. The average monthly premium rose from $25.93 in 2006 to $37.02.

2020- The donut hole will be closed for good.

How to Avoid the Part D Penalty

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