What is Part D?
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 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. Updated for 2022. Fortunately, today’s Medicare beneficiaries have better coverage with Part D. Beneficiaries can enroll in a standalone Part D drug plan that goes alongside their Original
Medicare benefits, or they can choose a Part D drug plan that is built-in to a Part C Medicare Advantage plan.
What is Part D and how does it work?
What is Part D? It is an optional prescription drug program for people on Medicare. 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:
1. Annual Deductible
In 2022, the allowable Medicare Part D deductible is $480. 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.
2. 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 tier has a copay 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 $4,430 in 2022.
3. The Coverage Gap
After you’ve reached the initial coverage limit for the year, you enter the coverage gap. During the gap, you will pay only 25% of the retail cost of your medications. (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 $7,050 in 2022. Please note that to get into the gap, Medicare tracks the total costs of what you and the insurance company have spent, but to get OUT of the gap, they
are counting only what you have paid in deductibles, copays, and gap spending that year, plus manufacturer discounts. They do not count anything the federal government contributes.
4. 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.
This is the structure in 2022 and will continue into 2023, but with the new Inflation Reduction Act, you will begin to see changes in the Part D structure in 2024.
Medicare Part D Explained
Medicare Tracks Your Part D Spending It’s important to note 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 the 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, 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 will need to help you file a drug exception with your carrier to request coverage for the original medication prescribed. He will need to explain why you need the more expensive medication when less expensive alternatives are available. Often this requires that he shows that you have already tried less costly options 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 three 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 to deal with this extra paperwork regularly, no matter which drug plan you choose.
Part D plan restrictions are common with pain medications, narcotics and opiates. 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 that 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 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 be sure not to miss your window if you need drug coverage!
Frequently Asked Questions About Medicare Part D
Do I have to pay for Medicare Part D?
Yes, you will pay a monthly premium to the insurance company whose Part D plan you enrolled in. Everyone pays for Part D unless you qualify for Medicare’s Extra Help Program – Low-Income Subsidy.
How much does it cost for Medicare Part D?
The insurance carriers set the monthly premiums, and they vary widely. In most states, you can find plans starting around $15/month.
Who is eligible for Medicare Part D?
Any Medicare beneficiary enrolled in either Part A and/or B can enroll in Medicare Part D. You must live in the plan’s service area as well.
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 $15/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. Part D is optional but it is our advice that you do not skip out on the prescription coverage. There are hundreds of medications that cost hundreds or thousands of dollars per year. These would be difficult to afford without coverage.
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.
Not sure where to start? Talk with our Healthwise Insurance agent today to explore your Medicare Options.
