Prescription drug plans are available through Medicare Part D. You can join either a standalone Part D plan or a Medicare Advantage Prescription Drug plan to get this coverage.
PDPs, or prescription drug plans, are notably not a part of Original Medicare. Since many Medicare beneficiaries need prescription drugs as part of their overall healthcare needs, Medicare prescription drug plans are a very popular option. These plans usually fall under Part D of Medicare, but it is also possible to get prescription drug plans as part of Medicare Advantage.
We’ll cover the full range of details that you need to know when considering a Medicare prescription drug plan.
Medicare Drug Coverage: The Basics
Before we get into the details, let’s take a look at some of the basic facts that you should know about Medicare prescription drug coverage.
- Prescription drug coverage is always offered by private insurance companies, not the federal government.
- PDPs are available as standalone plans or as part of private Medicare Advantage plans.
- You can have a PDP in addition to Medicare Part A, Part B, or both.
- Plan cost will vary depending on location, age, health, and other factors.
- Coverage will vary from plan to plan, and each plan will have a distinct drug formulary.
We’ll go through each of these features in more detail later, but they are important to keep in mind heading into any discussion of Medicare prescription drug insurance.
When Can I Enroll in a PDP?
There are three main periods during which you can enroll in a PDP. During these periods, you can enroll in a PDP for the first time, change from one PDP to another, disenroll in your PDP, or enroll in a Medicare Advantage plan that offers prescription drug coverage. The periods in question are the Initial Enrollment Period, the Special Enrollment Period, and the Open Enrollment Period.
The Initial Enrollment Period refers to a seven-month-long period that comes into play when you first become eligible to enroll in Medicare. This period consists of three months before your 65th birthday month, your birthday month itself, and three months after. During this period, you can enroll in Original Medicare, and can also enroll in a Part D prescription drug plan of your choosing.
The Special Enrollment Period is a person-specific period that is triggered by certain life events. The idea behind the Special Enrollment Period is to give you a chance to get insurance coverage if you have lost coverage or moved to a new area.
For example, you will trigger a Special Enrollment Period if you are eligible for Medicare, but are covered by your employer’s health insurance plan and then lose that employer-based coverage. This allows you to enroll in Medicare ASAP, so you won’t have a gap in coverage.
There are many different triggers for Special Enrollment Periods, and this will vary from person to person.
The Open Enrollment Period is a set period that lasts from October 15th to December 7th of each year. During this period, anybody who is eligible but not enrolled in Medicare can enroll, and you can also make changes to your plan without penalty. If you have Original Medicare but no PDP, you can enroll in one at this time.
How Does Coverage Work?
Medicare PDPs function differently from Original Medicare. Because they are private insurance plans, they will function similarly to other private plans you’ve likely had in the past. The three biggest differences from Original Medicare are pharmacy networks, drug formularies, and cost-sharing options.
PDP Pharmacy Networks
Like most other insurance plans, PDP plans will have a provider network. If you've had an HMO or PPO plan in the past, you're likely familiar with the basics of how these provider networks work.
Unlike other health plans, in this case, the providers will be pharmacies. Your plan may have a list of pharmacies that they partner with, and your drugs will come at a lower cost at these pharmacies. The details for each plan will vary widely, but the basic idea is similar to provider networks that you are likely used to from other insurance plans.
Understanding Drug Formularies
Formularies are one of the most notable things to be aware of when you shop for a prescription drug plan. A formulary is a tiered drug list that tells you how much you will pay in out-of-pocket costs for a specific drug under that plan. The basic idea is that even given your insurance coverage, some drug costs will be higher.
It is essential to be aware of your plan’s formulary before you pick a plan to purchase. This is especially true if you already know which drugs you are going to need to be covered. Picking the wrong plan can result in not having the coverage that you need, at a very high cost to you.
In general, formularies will put cheap generic drugs on tier 1, which represents the lowest out-of-pocket cost on your end. As you go up the tiers, you will start seeing brand-name drugs that are more costly and come with a higher copay.
The formulary should be one of the main things that you look at when you compare plans, as it defines your coverage.
Cost-Sharing Options for PDPs
Cost-sharing refers to how your plan decides how much you pay out of pocket for covered services. Medicare Part B and Part A both have a standard deductible, coinsurance, and copayment that are set by the government. However, private plans will have their own cost-sharing arrangements.
Notably, plans differ regarding their copayment rates for different tiers on their formulary. You may also be able to find high-deductible plans, which offer higher cost-sharing options (especially higher deductibles), but lower monthly premiums.
There is no standard option when it comes to cost-sharing for your Part D benefits. Most prescription drug insurance plans will have some kind of copayment, where you pay a flat fee each time you get the prescription filled. However, some plans may also have a coinsurance (percentage-based) cost-sharing program in place.
The Medicare Part D Coverage Gap
There are four stages of Medicare Part D coverage:
- The deductible phase, during which you are responsible for 100% of prescription drug costs. The maximum Part D deductible in 2023 is $505.
- The initial coverage phase, during which your plan pays around 75% of costs and you pay the remaining 25%. You remain in this stage until you and your plan's combined spending totals $4,660.
- The coverage gap phase (also known as the donut hole), during which you continue paying 25% of drug costs but your plan's share drops to 5%. The drug manufacturer picks up the remaining 70%. You stay in the coverage gap until your out-of-pocket (plus 95% of the drug manufacturer's share) total $7,400.
- The catastrophic coverage phase, during which you'll only pay a small co-pay or co-insurance for covered prescriptions. Fewer than 5% of Medicare beneficiaries ever make it to the catastrophic coverage phase.
It's important to note that your costs do not change in the coverage gap - you continue paying around 25% of your prescription drug costs, just as you did during the initial coverage phase.
Medicare Advantage and PDP Plans
Medicare Advantage, also known as Medicare Part C, is a way of receiving all of your Medicare benefits through private insurance companies. While not all Part C plans offer prescription drug coverage, some do.
If you have a Medicare Advantage prescription drug plan (MA-PDP) then you won’t be able to get another PDP. If you are covered for prescription drug coverage under Medicare Advantage, then you should make sure that all of your benefits work for your situation, as all of your coverage will come from one plan.
If you purchase a Medicare Advantage plan that doesn’t include drug coverage, then you can still purchase a PDP in addition to your Medicare Advantage plan. In this situation, your options will be the same as they are if you have Original Medicare.
Medicare Extra Help for Part D
Extra Help, also known as the Medicare Part D Low-Income Subsidy, is a program that can help qualifying enrollees to pay for fees associated with Part D. Extra Help will vary depending on whether or not you receive partial or full aid, which depends on your income level. For some, Extra Help can amount to around $5,000 in benefits per year.
Before you apply, you should examine the restrictions and application details for Extra Help. If you plan on enrolling in a Part D prescription drug plan, it is worth looking into.
Can Medigap Help?
Medigap plans, also known as Medicare Supplement plans, are plans that help pay for some of your out-of-pocket costs with Medicare. They will pay for things like your Part B and Part A coinsurance.
Medigap plans will only cover out-of-pocket costs that you incur under Original Medicare, not Part D plans. While they may be useful to look into in general, they won't help lower the cost of your prescription drug coverage.
PDPs: Final Thoughts
If you’re going to enroll in Medicare, you need to make sure you have some kind of prescription drug benefits. Whether that’s through an integrated Medicare Advantage plan or a standalone Medicare Part D plan, make sure to consider your options before enrolling.
Specifically, remember to check if your plan has a formulary that fits your needs, and to understand the pharmacy network and cost-sharing options that you’ll be dealing with. And, make sure to enroll as soon as possible, preferably during the Initial Enrollment Period, so you don’t face any gaps in coverage.
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