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Enrolling in Medicare benefits offers the peace of mind of having coverage for hospital stays and doctor visits.
But if you’ve only signed up for the required parts of Medicare — Part A for hospital insurance and Part B for medical coverage — you’ll need a separate plan to help cover a major health care expense for older adults: prescription drugs.
This is where the fourth part of Medicare, the Part D plan, comes in.
In the simplest terms, Medicare Part D is insurance to help pay for your medications. Part D is an optional part of Medicare but helps cover the cost of your prescription drugs while keeping other medication expenses down.
The federally sponsored program is administered through private insurance companies, which charge you a monthly premium and a percentage of the cost of your medications. In exchange, the insurance company pays the balance of your medication’s cost.
Part D coverage began in 2006 to help Medicare beneficiaries with retail drug costs. Insurers rely on a network of pharmacies to provide these medications so individuals can obtain their medications at a lower cost.
• Prescription and generic drugs
• Medications administered in outpatient settings
• Medication Therapy Management services if you meet certain requirements or are in a program that helps members use opioids safely!
Medicare eligible individuals can get Medicare prescription drug coverage in one of two ways:
• Medicare drug plans: These are private plans you can purchase along with Original Medicare, Medicare Cost Plans, some Private Fee for-Service plans and Medical Savings Account Plans. As long as they have Medicare Part A and Part B, Medicare recipients can enroll one of these standalone Part D plans.
• Medicare Advantage plans (Part C): These bundled, private plans — which include Medicare Part A and Part B — usually feature Part D drug coverage as well.
You may be wondering: What are the eligibility requirements for Medicare prescription drug plans?
You must have Medicare Part A (hospital insurance) and/or Medicare Part B (medical insurance) to enroll in a Medicare drug plan. You also must be a U.S. citizen or lawfully present in the United States.
Breakdown of Part D costs
In terms of cost, Medicare prescription drug plans follow four stages over the course of the year.
• Stage 1, Annual Deductible: You pay for your prescriptions at full cost until your spending adds up to the amount of your deductible.
• Stage 2, Initial Coverage: After you’ve covered your deductible, your plan will pay for a portion of each covered prescription drug you purchase.
• Stage 3, Coverage Gap: When you and your plan have collectively spent $4,430 on covered drugs, you will enter a coverage gap in which you will pay up to 25% of the plans cost for covered generic drugs.
• Stage 4: Catastrophic Coverage: After your total out-of-pocket cost exceeds $7,050, you come out of the coverage gap and begin receiving catastrophic coverage, in which Medicare and your insurer pay for about 95% of the cost of covered prescription drugs.
There are a few standard costs you will likely pay for Medicare Part D coverage:
• Monthly premiums: When it comes to the average monthly cost of Medicare Part D premiums, they vary by plan and region, but the average cost of a standalone prescription drug plan with enhanced benefits was about $44 per month in 2021, and the average cost of a basic benefit prescription drug plan was about $32 a month, according to the Kaiser Family Foundation.
• Annual deductibles: You’ll need to pay this amount each year before your Medicare drug coverage kicks in. Deductibles vary by plan — and some plans don’t even charge a deductible — but federal requirements dictate that no Medicare drug plan can charge over $480 in 2022.
• Copayments and coinsurance: After you’ve covered your deductible, you will have to pay these amounts as your share of the cost of a prescription. Coinsurance is a percentage of the cost of the prescription, while copayments are a flat fee your insurer charges you for certain medications.
A higher income could mean higher monthly premiums for Medicare drug coverage, regardless of whether you have Original Medicare or a Medicare Advantage Plan.
So then what is the income limit for Medicare Part D?
For individuals making over $87,000 and couples earning more than $174,000, you will have to pay an extra amount, known as Part D IRMAA (Income-related Monthly Adjustment Amounts), in addition to your plan premium.
In 2022, the extra amount ranges from $12.50 to $77.90 each month. Social Security will contact you if you have to pay this amount.
It’s important to note that this extra amount isn’t part of your plan premium, which means you’ll get a bill from Medicare if you don’t opt to have this amount automatically deducted from your Social Security check. If you don’t pay this amount, you can lose your prescription drug coverage.
The amount Medicare pays for prescriptions depends on which drug coverage plan you choose. If you have a plan with a deductible, your plan will not pay for your prescriptions until you pay your deductible in full.
Some plans charge a copayment for prescriptions, such as $5 for a generic drug and $25 for a preferred brand-name drug.
Plans may also use a coinsurance, or cost-sharing model, meaning you pay for a percentage of the cost of the drug, and your insurance will cover the rest.
Certain plans may require a fixed copayment for some prescriptions and coinsurance for others, such as more expensive drugs.
You’re not required to sign up for Medicare prescription drug coverage. But if you go too long without any drug coverage, it could cost you if you change your mind down the line.
If you don’t get Medicare drug coverage when you first become eligible, you may rely on other creditable prescription drug coverage, such as coverage from an employer or union.
The cost of the penalty depends on how long you went without Part D or creditable prescription drug coverage.
Outside of the initial enrollment period, you may also avoid penalties by signing up during a special enrollment period, under certain circumstances. For example, if you lose your employer’s drug plan, you may sign up for Medicare Part D within two months of your employer’s coverage ending.
How do Medicare Advantage plans cover prescription drugs?
Most Medicare Prescription Drug Plans and Medicare Advantage prescription drug plan (MAPD) maintain a formulary, or list of which prescription drugs are covered. The formulary includes at least two drugs in each of the most commonly prescribed categories, although some plans may cover more.
Although your specific prescription may not be available, you should be able to find a comparable drug in the formulary. If you or your doctor believes you need a drug that is not on the list, you can request an exception.
What is “Extra Help” with a Medicare prescription drug plan?
People with limited income and resources can seek assistance through Medicare’s “Extra Help” program, which helps pay for prescription drug program costs such as premiums, deductibles and coinsurance. The program also waives the late enrollment penalty if you sign up for a drug plan after the enrollment period has passed.
Are all Medicare Part D plans the same?
Federal regulations require that all Medicare plans cover the same categories of drugs, but individual plans can choose which specific drugs they cover in each category.