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Jeff Chivers
Medicare? ME??? Part IV
Prescription Drug Coverage – the Medicare “Wild Card”
In my former posts, I’ve provided a general overview of Medicare and its various parts:
- Part “A” – medically necessary hospital, skilled nursing facility, home health, and hospice care
- Part “B” – medically necessary doctors’ services, preventive care, durable medical equipment, hospital outpatient services, laboratory tests, x-rays, mental health care, and some home health and ambulance services
- Part “D” – outpatient prescription drug coverage
Various approaches to Medicare utilization (advantages, disadvantages, costs etc):
- Remaining on original Medicare only (Parts A, B & D)
- Remaining on original Medicare (Parts A., B & D) supplemented by enrolling in a Medicare Supplement (Medigap) Plan offered by private insurance companies designed to cover the “gaps” in original Medicare (deductibles co-pays and exclusions)
- Enrolling in Medicare Part “C” – Medicare Advantage Plans; with Parts A, B and D are combined in a single plan, also offered and managed by a private insurance companies
The focus of this post will be a closer look at Medicare Part D prescription drug coverage. As you will see, Part D can indeed be a “wild card” having substantial impact on your overall Medicare costs.
When to enroll
You should sign up for Medicare Part D no later than the date your Part B becomes effective.
Don’t delay even if you do not take any prescription drugs regularly right now. If you wait until later to sign up, you will be charged extra on your premium for every month that you waited. The amount of that premium penalty changes every year. In 2016, you would be charged one percent of $34.10 (the national average of the cost of plans) for every month you are late in starting your Part D. So if you waited to enroll for two years past when you should have enrolled in a Part D plan, the extra charge would be 24 percent of $34.10, or about $8.20 extra per month – for as long as you live!! The only way to avoid this late enrollment penalty is having equivalent drug coverage, called "creditable" coverage from another source, such as VA benefits or a group/retiree plan that includes drug coverage. Speak with your plan administrator who’ll be able to tell you whether your plan’s coverage is creditable.
What you will pay for a Part D Plan
As I mentioned, the national average Part D plan costs about $34 a month but prices can vary - as low as $18 a month to over $70 a month. Plan participants with higher incomes (over $85,000 for a single individuals or $170,000 for those filing joint returns) may be subject to higher Part D premium costs. Generally, plans with lower premiums will be less expensive overall for those whose prescriptions consist of low-cost “generic” drugs while plans with higher premiums will generally be more cost-effective when utilized for the purchase of more expensive medications including brand named drugs.
In 2016 the maximum allowable deductible for Part D plan coverage is $360, though many plans have lower or even no deductibles. Different plans also charge varying amounts for the same prescriptions – sometimes charging a flat-dollar amount and sometimes a percentage of the cost of the prescription (co-insurance). Most plans sort drugs into "tiers," with drugs in the lower tiers costing less.
The three coverages phases of Part D
You can think of your Part D "coverage year" as divided into three phases that come in order.
Phase 1: Initial coverage
In 2016 you will pay an average of 25 percent of the costs of your medications until you and Medicare together have spent $3,310. But that's only an average. Your personal share of expenses might be different depending on whether your plan has a deductible, how many drugs you take, and how much your drugs cost. If you don't take a lot of costly drugs, you probably will never get out of this first phase.
Phase 2: The dreaded “Donut hole”
When you and your Part D plan together have spent $3,310 on your drugs, you will enter this phase, also called the "coverage gap." While in the donut hole, you will have to pay a larger share of your drug costs. In 2016 you will pay 45 percent of the cost of your brand-name drugs and 58 percent of the cost of generics.
One part of the Affordable Care Act created a schedule for closing the donut hole. It is about half-closed now and will be completely eliminated as of 2020. Afterward there will be only two coverage phases in a year.
Phase 3: Catastrophic coverage
After your out-of-pocket drug cost totals $4,850 the year, you exit the donut hole and enter the Catastrophic coverage phase. In this phase you will pay a copayment of the higher of 5% or $2.95 co-pay for generics (including brand drugs treated as generics) and a $7.40 copayment for all other drugs through the end of the year, then the phase 1-3 cycle begins again on January 1.
(Note: Regardless of whether a person gets their Part D drug coverage by enrolling in Medicare Advantage Plan that includes Part D coverage enrolling in a separate prescription drug plan, they are subject to the plan phases and costs as outlined above. It is my experience that overall Part D costs will be close to the same whether enrolling coverage through a Medicare Advantage Plan or separate Part D drug plan.)
Part D coverage - the bottom line
As is evident from the above, your overall Medicare costs can be greatly impacted by your need for prescription drugs and plan you select. With numerous plans available, each with varying premium costs, deductibles, drug formularies, tier structures etc., your overall costs for the same prescriptions may vary by hundreds or even thousands of dollars per year, depending upon the Part D plan you select.
Before you enroll in a prescription drug plan (either through a Medicare Advantage or a separate prescription drug plan) it is imperative that you have a Medicare professional run an analysis of your medications to determine which of the available plans will be most cost-effective for your situation. Also, as your medications change and individual plan coverages and Medicare regulations change from year-to-year, it’s vital to run this analysis annually during the Medicare Open Enrollment to be sure your plan coverage is optimized for the coming year.
Let me know if you have questions. I would be pleased to run a prescription drug analysis for you and/or assist in any way to help you make the most of your Medicare plan coverage and benefits.
Jeff Chivers 801-712-8448 jfchivers@hotmail.com
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