Getting Started with Medicare: Part D – Prescription Drugs

When Medicare was introduced in 1965, prescription drugs were not covered. However, in December 2003, Medicare Part D was signed into law to cover the cost of medications. Unlike Medicare Part A and Part B, however, Part D is optional.

What Part D Covers

Medicare Part D is offered via plans marketed by private companies. Each plan publishes its own list of covered drugs called a formulary. Formularies contain both brand-name and generic drugs. A formulary typically will have two or more drugs in the most popular categories to allow for more choices.

Formularies are not static. Medicare rules allow a plan to make changes to its formulary and drug fees during the year because:

  • New drugs become available, or the ways to use drugs change
  • Drugmakers change prices, thereby motivating a plan to increase copayments or coinsurance
  • A brand name drug may be dropped from the formulary, or its price may increase when a generic equivalent becomes available

Plans must provide affected enrollees with a thirty-day written notice for any formulary changes. Also, the plans must provide at least a month's supply of the medication under the old rules to help the enrollees through the transition.

Pricing Tiers

Part D plans divide their formularies into "tiers" with differing copayments and coinsurance. For example:

Tier Example Copayment/Coinsurance
1 Generic drugs Low
2 Preferred brand-name drugs Middle
3 Non-preferred brand-name drugs High
Specialty Specialized drugs like cancer chemotherapy Highest
Tiers allow plans to control costs by encouraging enrollees to use less expensive lower-tier medications.

For a Medicare enrollee who takes a drug not on the formulary or believes a drug is in the wrong tier, the enrollee or their doctor can file an exception request with a statement outlining the medical necessity. A plan must provide a written decision within 72 hours or 24 hours for an expedited request.

Two Ways to Get Part D

There are two ways to get Medicare Part D prescription drug coverage:

First, those with Original Medicare (Part A and Part B) can subscribe to stand-alone Part D plans offered by private companies.

Second, enrolling in a Medicare Advantage plan that offers prescription drug coverage.

To find and compare plans, go to the Find a Medicare Plan webpage and click "Learn About More Options" under the "New to Medicare?" label. The subsequent pages allow the user to take either the Original Medicare path or a Medicare Advantage path. Each path leads to a list of options for obtaining Part D coverage.

It makes sense to enroll in Part D when signing up for Medicare or when losing creditable coverage with another plan. Otherwise, adding it later might mean permanently paying more for the coverage. It's also important to note that those with Medicaid coverage don't need Part D because that program already covers prescription drugs.

Comparing Plans

A potential Part D enrollee's first step in comparing plans is to find those that include all their prescription medications. After that, the primary points of comparison are:
  1. Monthly premiums
  2. Deductibles, copays, and coinsurance.
  3. Pricing tiers.
  4. "Coverage gap" provisions. (The infamous Part D "donut hole" might result in higher costs depending on each individual's situation. Some plans may help minimize costs in this gap.)

The Medicare "Donut Hole"

Depending on an enrollee's annual spending on prescription drugs, the amount reimbursed by a Part D plan changes as the total yearly volume of drug purchases increases. For some enrollees, their total spending may rise to a level where they pay more for prescriptions. This is called the "coverage gap" or "Donut Hole."

As they progress annually through the prescription medication spending levels (also known as drug benefit phases,) enrollees pay differing amounts for drugs:

  1. Deductible –An enrollee pays the full cost of medications until meeting the deductible. Each plan has its own deductible amount.
  2. Copays and coinsurance – After meeting the deductible, the enrollee pays copays and coinsurance amounts according to the plan's rules. The plan then pays the remaining costs. For 2022, this stage continues until the combined enrollee and plan spending reaches $4,430.
  3. Donut Hole (aka – "coverage gap") – In the cost range from $4,431 to $7,049 (2022 rates), enrollees pay 25% drug costs. This could be greater than what the enrollee previously paid for copays and coinsurance.
  4. Catastrophic coverage – Once an enrollee's total drug costs reach $7,050, small copayment and coinsurance amounts apply.

Those with limited financial resources may qualify for assistance in paying their drug costs under Part D. Check the Medicare website for more information and qualification rules.

Part D plans that go with Original Medicare are the easiest to compare. When considering Medicare Advantage and Medigap plans with prescription drug coverage, the comparison process takes in a broader scope.

Original Medicare plus a separate Part D plan versus Original Medicare plus a Medigap plan that includes prescription drug coverage versus A Medicare Advantage plan that includes prescription drug coverage

These comparisons must consider Parts A and B provisions as well as Part D drug coverage. This will ensure that all aspects of health insurance coverage are examined to find the best fit.

When to Enroll

Medicare Part D plans can be joined during specific periods. Switching or dropping plans can also happen at these times:

  • Initial Enrollment – When first becoming Medicare-eligible.
  • Open Enrollment – October 15 to December 7 – Coverage begins January 1.
  • Medicare Advantage Open Enrollment – January 1 – March 31 – if already enrolled in a Medicare Advantage plan, switching to a new plan or to original Medicare happens during this period.
  • Special Enrollment – Events like moving or losing other insurance coverage allow enrollees to make changes to their Part D plans.

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