A Medicare Part D drug plan is essentially a pharmacy card that you enroll in with an insurance company to lower your medication costs. Instead of paying the full cost for your prescriptions, you will pay only the copays and coinsurance required by the plan.
For over 50 years prior to 2006, there was no retail prescription drug coverage for Medicare beneficiaries. Enrollment is voluntary, but the plans are very popular. Today there are more than 37 million Medicare beneficiaries enrolled in Part D coverage, per the Kaiser Family Foundation. To learn more on how and when you can enroll, click here.
Companies Offering Medicare Part D Plans
Each year, there are many companies that offer Part D drug plans. It is not uncommon for residents in each state to have 30 or more choices. Each insurance company sets its own price and drug formulary as well as what the copays will be for each tier of medications. However, they do have to comply with federal requirements to ensure minimum essential levels of coverage, and they must submit their plan designs annually to Medicare for approval.
Since the insurance companies design their own plans, they also choose the pricing for that plan. In 2016, premiums will vary by plans and regions, and range from around $12 – to well over $100 per month. The national average premium is around $41. Beneficiaries can choose to pay these premiums out of their Social Security check or direct to the insurer.
Do I Have to Enroll in Part D?
Part D is voluntary, which means each individual can decide whether or not to enroll. You should think about not just the medications you are taking now that you may need coverage for, but also those that you may need in the future. Also, just as with Medicare Part A and B, if you fail to enroll when first eligible, you may be subject to late enrollment penalties and waiting periods until you can into a plan.
The late enrollment penalty
- If you fail to enroll in Part D when you first become eligible, and you don’t have other creditable coverage for prescription drugs elsewhere, such as through an employer group health plan or through the VA, you may be subject to paying a penalty. This penalty amount depends on how long you waited to enroll in a plan.
- The penalty is calculated by Medicare as follows: 1% of the national average base Part D premium for every month that you went uncovered and did not have other creditable coverage. The penalty is rounded to the nearest $.10, and then added to the premium you pay for your new Part D premium. In 2016, the base premium is around $34.10, so if you had waited 50 months to enroll in Part D, you would have a penalty of 50% of $34.10 added to your chosen Part D plans’ premium. When you do finally enroll in Part D, you will pay the penalty for the rest of your life.
- More importantly, if you miss your window, you cannot buy a drug plan mid-year without a special circumstance. So if you develop a serious health condition in March and you need a very expensive medication for it, you would pay the full retail cost of that medication until the next Part D annual election period. This means you would have no coverage until January 1st. Remember that you are insuring your body here – and consider the true risks of being uninsured.
Late Enrollment scenarios
Sometimes it’s difficult for Medicare beneficiaries to really understand how late enrollment will affect them. Here are a few examples designed to show you why you should seriously consider joining a Part D drug plan when you are first eligible.
How the late enrollment penalty is calculated
Mr. Brown became eligible for a Part D drug plan in September of 2013, but failed to enroll and had no other creditable drug coverage such as group benefits or VA coverage. Finally, during the annual election period, he enrolled in a Part D drug plan to be effective on January 1, 2015. Because he was uncovered for 16 months, his penalty would be calculated by Medicare, but would likely be something like this:
The penalty is then 16% for being uncovered 16 months. If the national average premium was $33.13 in 2015, his penalty is then approximately 33.13 x .16, or $5.30 cents added to the cost of whichever Part D plan he chooses. Mr. Brown will pay this monthly penalty on top of his drug plan premium for the rest of his life.
The risks of late enrollment
Mrs. Miller had been healthy all her life and, at the time of her Medicare eligibility, was taking no medications. Against the repeated advice of her insurance agent, she decided to gamble that her good health would continue so she decided not to enroll in Part D.
Four years later, she was diagnosed with cancer in September, and was prescribed Gleevec, a specific oral cancer medication that falls under Medicare Part D. Her specific dosage had a retail medication rate of $5,600 per month. Because she cannot enroll in a drug plan outside of the fall annual election period, Mrs. Miller had to pay the retail cost of her potentially life-saving medication for 4 months. Her total spending before her new drug plan began the following January was $22,400. (*This is a real-life example from an actual Boomer Benefits client, though the name has been changed to protect the client’s privacy.)
We provide FREE assistance to our clients by analyzing their Part D drug plan needs. Learn the facts from us! When you request quotes from Boomer Benefits, we also provide free help to you with your Part D drug plan.
If you are following our Medicare Learning Track, go next to: Medicare Part D – What It Covers