Medicare Part D is a federal program administered through private insurance companies. These companies offer retail prescription drug coverage to Medicare beneficiaries. Prior to 2006, when the Medicare Part D began, tens of thousands of Medicare beneficiaries in America had little help with retail drug costs. They would often spend thousands of dollars each year paying for their medications out of pocket. Fortunately, today’s Medicare beneficiaries have better coverage with Part D.
What is Part D and how does it work?
Medicare Part D is simply insurance for your medication needs. You pay a monthly premium to an insurance carrier for your Part D plan. In return, you use the insurance carrier’s network of pharmacies to purchase your prescription medications. Instead of paying full price, you will pay a copay or percentage of the drug’s cost. The insurance company will pay the rest.
Your Part D insurance card will be separate from your Medigap plan.
Medicare Part D plans all follow federal guidelines. Each insurance carrier must submit its plan outline to the Centers for Medicare and Medicaid Services annually for approval.
To improve your understanding of Medicare Part D, let’s look at the basic way that each Part D plan works:
How does Medicare Part D work?
There are 4 stages to a Part D drug plan, as follows:
- Annual Deductible – in 2018, the allowable Medicare Part D deductible is $405. Plans may charge the full Part D deductible, a partial deductible, or waive the deductible entirely. You will pay the network discounted price for your medications until your plan tallies that you have satisfied the deductible. After that, you enter initial coverage.
- Initial Coverage – during this stage of Part D drug coverage, you will pay a copay for your medications based on the drug formulary. Each drug plan will separate its medications into tiers. Each tiers has a copy amount that you will pay. For example, a plan might assign a $7 copay for a Tier 1 generic medication. Maybe a Tier 3 is a preferred brand name for a $40 copay, and so on. The insurance company tracks the spending by both you and the insurance company until you have together spent a total of $3750 in 2018.
- The Coverage Gap – after you’ve reached the initial coverage limit for the year, you enter the coverage gap. During the gap, you will still generally have significant discounts for generic medications. You will pay only 35% of your brand name medications, and 44% of generics. (This is so much better than in 2006 when many people had to pay 100% of their drugs in the gap.) Your gap spending will continue until your total out of pocket drug costs have reached $5000 in 2018.
- Catastrophic Coverage – after you’ve reached the end of the coverage gap, your plan will kick in to pay 95% of the costs of your formulary medications for the rest of the year. This feature in Part D drug plans helps you limit your potential spending if you have expensive medications.
Medicare Tracks Your Part D Spending
It’s important to note that Medicare itself tracks your True Out of Pocket Costs (TrOOP) for each year. This can protect you from paying certain costs twice. For example, say you have already satisfied the deductible on one plan. Then you later switch mid-year to a different Medicare Part D plan because you moved out of state. Your new plan will already see that you have paid the deductible for that year. The costs for coverage gap and catastrophic coverage work the same way.
Part D drug plans also have changes from year to year. Your plan’s benefits, formulary, pharmacy network, provider network, premium and/or co-payments/co-insurance may change on January 1st of each year. Medicare gives you an annual election period during which you can change your plan if you desire to do so.
Drug utilization rules that affect your Part D coverage
Medicare allows drug plan carriers to apply certain rules for safety reasons and also for cost containment. The most common utilization rules that you may run into are:
- Quantity Limits – a restriction on how much medication you can purchase at one time or upon each refill. If your doctor prescribes more than the quantity limit, then the insurance company will need him to file an exception form to explain why more is needed.
- Prior Authorization – a requirement that you or your doctor must obtain plan approval before allowing a pharmacy to dispense your medication. The insurance company may ask for proof that the prescription is medically necessary before they allow it. This usually affects medications that are expensive or very potent. The doctor must show why this specific medication is necessary for you and why alternative drugs might be harmful or ineffective.
- Step Therapy – the plan requires you to try less expensive alternative medications that treat the same condition before they will consider covering the prescribed medication. If the alternative medication works, both you and the insurance company save money. If it doesn’t, your doctor to help you file a drug exception with your carrier to request coverage for the original medication prescribed. He will explain need to explain why you need the more expensive medication when less expensive alternatives are available. Often this requires that he show you have already tried less expensive alternatives that were not effective.
Your overall Medicare prescription costs can be affected by these restrictions. Always check your medications in the plan formulary to see if restrictions apply to any of your important medications.
Restrictions are Part of All Part D Drug Plans
ALL of these 3 types of restrictions occur throughout the formularies of every Part D drug plan in the market. They are especially common with pain medications, narcotics and opiates. If you take a significant amount of pain medication, be prepared that you will deal with his extra paperwork on regular basis no matter which drug plan you choose.
People often think that changing from one drug plan to another will help. However, nearly all Part D carriers have restrictions on pain meds. You will encounter this no matter which plan you are on. The best you can do is to pick a carrier with the lowest overall annual anticipated spending. Then file the required exception forms to try to get as much approved as the plan will allow.
There are also some medications which are not covered by Part D. If you take a medication that is not on the formulary, such as a compound medication, you will have to file an exception to try to get that drug approved. Not all exceptions are approved, so be aware that you may pay out of pocket for any medication that is not covered by your plan or by Part D as a whole.
Part D drug plans are among the most confusing Medicare topics. All too often people join a plan without checking to make sure the formulary includes their medications. Sometimes they also miss that one of their medications has step therapy rules applied. Many beneficiaries also miss their initial enrollment window, so if you need drug coverage, be sure not to miss your window!
Should You Skip Part D?
Our agency does not recommend skipping Part D. Why risk it when most states have plans available for as low as around $17/month? Keep in mind that Part D is insurance not just for your medications today. It also insures you for any new medications that your doctors prescribe in the future.
There are hundreds of medications that cost hundreds or thousands of dollars per year. These would be difficult to afford without coverage. If you are still not sure, please read our article about Why You Need Part D.
At our agency, we assist our Medicare supplement clients with their annual Part D drug plan analysis for free. This free assistance is limited exclusively to our Medigap policyholders. We’ll review your current medications and run them through the Medicare search engine. We’ll identify which plan gives you the lowest annual spending and the least restriction hassles. Then we’ll provide free claims support for the life of your policy.
Don’t forget that Part D is voluntary! If you wish to enroll, you must contact your agent during a valid election period to initiate the conversation.
If you are following our Medicare Learning Track, go next to: Medicare Part D Plans – How to Enroll & Why You Should Enroll