How to Choose A Prescription Drug Plan

One of the most confusing parts of Medicare is around Prescription Drugs Plans, otherwise known as the Part D plan.  If you are eligible for Medicare, you are also eligible for Part D prescription drug coverage.  You may enroll in a Part D plan if you are entitled to Medicare Part A or if you are enrolled in Medicare Part B.

Many do not think they will need prescription coverage and delay signing up.  However, researchers estimate that 25 percent of people ages 65 to 69 take at least 5 prescription drugs to treat chronic conditions and that figure nearly doubles to 46 percent for those between the ages of 70 and 79.

Part D is a typical insurance plan and provides coverage when you need it.  However, it does not allow you to wait until the need becomes urgent to apply for it.  If you don’t enroll in a Medicare prescription drug plan when you’re first eligible or if you go without prescription drug coverage for a period of 63 or more days in a row after you qualify, you may have to pay a late-enrollment penalty (LEP).  The penalty accrues 1% per month for every month you’re eligible for a Part D plan and not enrolled.  It will accrue each year until you enroll.

Although Medicare Part D plans are required by the federal government to cover certain common types of drugs, each individual Part D or Medicare Advantage plan can choose which specific prescription drugs of each type it will cover.  Make sure to review what drugs your plan covers, because the specific prescriptions you take, may not be covered by all Part D Plans.

All Part D plans charge a monthly premium.  Other Part D costs may include a yearly deductible and then co-pays each time a prescription is filled.  The amount you pay will differ from plan to plan and depends on what tier your prescriptions fall into on the plan’s drug formulary.  The insurance companies that offer Medicare Part D drug plans and Medicare Advantage (Part C) plans with drug coverage set their own prices, although the costs and benefits are similar.

Part D plan premiums and costs can vary, even for similar coverage. Many plans have pharmacy networks and you usually pay less for prescriptions filled at network pharmacies.

Medicare Part D different stages of cost sharing until you reach a set limit on out-of-pocket costs for the year. The limit is $6,350 in 2020. After your out-of-pocket limit is reached, your plan pays most of the cost of your drugs for the rest of the year. Co-pays, co-insurance amounts and your plan deductible, if any, count as out-of-pocket costs. Premium payments do not.

Part D coverage is broken into four stages. You pay a share of the cost for your drugs in each stage. The stages progress based on how much you and your plan pay, up to set limits.

  1. Annual deductible:
  • You pay 100% of the cost up to the plan deductible amount.
  • If your plan does not have a deductible – coverage starts with the first prescription you fill. (The deductible may not apply to tier 1 & 2 drugs on some plans)
  1. Initial coverage:
  • You pay copays or coinsurance up to a set limit
  • You stay in this stage until your total prescription drug costs (what you pay and what your plan pays) reach $4,020 (for 2020).
  1. Coverage gap (the donut hole):
  • For brand name and generic drugs you pay 25% of the costs.
  • You pay a percentage of the cost in this stage until you reach an out-of-pocket limit $6,350 in 2020.
  1. Catastrophic coverage:
  • You pay the greater of a 5% coinsurance or copay amount.
  • You are in this stage for the remainder of the Part D plan year.

The best way to choose a Part D plan should be based on the specific prescriptions you are taking.  Many Part D plans do not cover all the drugs and they may charge different co-pays on the same drug.  Therefore, you should never pick a plan based on the cost of the premiums because the co-pays are what determines how much you will spend on your out-of-pocket in any plan.