Medicare Part D is a voluntary prescription drug plan administered by the federal government and offered by private insurers. You need Medicare Part A and/or Part B to qualify for Part D. You pay a monthly premium for Part D which allows you to buy your prescription drugs for a fraction of their retail cost. Your cost sharing is dependent on the structure of the plan.
Part D helps pay for your prescription drugs!
Enrolling in Part D
The best time to enroll in Part D is during your Initial Enrollment Period (IEP). Your IEP starts 3 months before your 65th birthday, includes the month you turn 65, and ends 3 months after the month you turn 65.
You can delay enrolling in Part D if you have creditable drug coverage from your employer. However, once you lose your employer coverage, you have 63 days to enroll in Part D. This is called a Special Enrollment Period (SEP). Other SEP’s can include:
- You moved outside the service area of your current plan.
- Your plan is ending its contract with Medicare.
- You moved into or out of a nursing home or long-term care facility.
- Your Extra Help status has changed.
Remember, you must have Part A (hospital insurance) and/or Part B (medical insurance) to enroll in a Part D drug plan.
Medicare Part D Overview
There may be as many as 30 different Part D plans available to you from 20 different insurance companies. In addition, all the plans will be uniquely structured. Your job is to find the plan that allows you to economically and conveniently purchase your prescription drugs.
There are several components that go into the structure of a Medicare Part D plan. Those are:
- monthly premium
- deductible (if any)
- copays
- drug tiers
- formulary
- pharmacy availability
Each one of the above components will be covered below.
Medicare Part D monthly premium
Part D monthly premiums vary widely. For example, there are plans starting around $7-$8 per month and some as high as $200 per month.
The best plan for you isn’t always the plan with the lowest monthly premium. Your specific prescription drugs and the pharmacy you use will determine the most cost effective plan.
Part D deductible
Some plans will have a deductible and some will not. The Part D deductible is the amount of money you pay each year before your plan begins sharing the cost with you. You will pay the full retail costs of your drugs until the deductible is met.
The Centers for Medicare and Medicaid Services (CMS) places a limit on how high the deductible can be each year. The deductible limit for 2021 is $445. That is roughly a 2% increase from 2020 ($435).
Part D plans may have a deductible set at the limit and others may have it set somewhere below the limit. In addition, the plans with a deductible usually have a deductible for certain drugs and not for others. The drugs that have a deductible are generally higher priced. These higher priced drugs are on a different tier (see below) than the less expensive drugs.
Part D copays
The Part D copay is your share of the prescription drug cost after paying your deductible. Plans without a deductible will have a copay beginning with the very first prescription you fill each year.
The copay for each drug is determined by which tier the drug is on. The size of the copay increases with each higher tier. In addition, the amount of the copay is affected by which pharmacy fills your prescription.
Atorvastatin is one of the most common prescription drugs prescribed for high cholesterol. Atorvastatin is generally found on Tier 1. Consequently, there may be a $0 copay for this drug if you fill it at a preferred pharmacy. However, the anti-diabetic, non-insulin medication Bydureon BCise is generally found on Tier 3. This drug may have a copay of $45-$50.
Medicare Part D tiers
Tiers are groupings of similarly priced prescription drugs in a formulary. Each tier represents a different level of cost sharing for a drug. Each Part D drug plan generally has 5 different tiers:
| Tier | Drug Classification |
|---|---|
| Tier 1 | Preferred Generic |
| Tier 2 | Generic |
| Tier 3 | Preferred Brand |
| Tier 4 | Non-Preferred Drug |
| Tier 5 | Specialty |
Preferred Generic – Tier 1 is made up of generic drugs offered at the lowest copay level.
Generic – Tier 2 consist of more expensive generic drugs with a higher copay.
Preferred Brand – Tier 3 drugs are lower cost, common brand names and some higher cost generic drugs.
Non-Preferred Drug – Tier 4 is composed of higher cost, brand name drugs and higher cost generic drugs. Some of these drugs may have lower cost options available on Tier 1, 2 or 3.
Specialty – The last tier is made up of very high cost brand and generic drugs. These drugs may come with special usage rules.
Part D formulary
A formulary is a list of the drugs that are covered by a Part D plan. You will want to make sure each one of your medications is on the formulary for the plan you are considering enrolling in. If it isn’t, there may be an alternative drug that your doctor can prescribe that is on the formulary.
Each formulary from the different insurance carriers will be different because they consult with their own unique team of health care providers. The goal of each formulary is to create a mix of prescription drugs that satisfies a well rounded treatment program.
The Centers for Medicare and Medicaid Services (CMS) requires every Part D formulary to include 2 drugs from each standard drug classification category. Therefore, every formulary will offer a comprehensive prescription drug plan.
Part D payment phases
You will potentially go through four payment stages in your Part D prescription drug plan. You will start each year in the Deductible phase. However, if your plan doesn’t have a deductible you will start in the Initial Coverage phase. After that, you will enter the Coverage gap phase, otherwise known as the “donut hole”. The final stage you may get to is called the Catastrophic coverage phase.
Most people will remain in the Initial Coverage phase. A smaller group of people will advance to the Coverage Gap phase. An even smaller group of people will end up in the Catastrophic coverage phase.
| Payment phase | Dollar limit |
|---|---|
| Deductible phase | up to $445 |
| Initial Coverage phase | up to $4,130 |
| Coverage phase | up to $6,550 |
| Catastrophic coverage phase | through the end of the year |
What do the different Medicare Part D phases mean?
Deductible phase – This is the first phase of a Part D drug plans if the plan has a deductible. You pay the retail cost of your prescription medications until you meet the deductible limit.
Initial coverage phase – This is the second phase of Part D drug plans if the plan has a deductible. However, if the plan doesn’t have a deductible, you will start each year in this phase. You pay a copayment for each prescription and the plan will pay the remainder. You will exit this phase when the total amount paid by you and your plan reaches $4,130.
Coverage gap phase – This is the third phase of part D drug plans and is also known as the “donut hole”. You will pay 25% of your prescription drug’s retail cost in this phase. The plan and the drug manufacturer will pay the remaining 75%. Your plan will pay 70% and the manufacturer will pay 5%.
Catastrophic coverage phase – Your costs will drop dramatically after you enter the fourth phase of your Part D drug plan. You will only have to pay a small copayment or coinsurance for each prescription.