In the first two parts of our series of articles on Medicare, we learned how original Medicare along with a Medigap plan (AKA Medicare Supplement) can help to reduce or even eliminate your out-of-pocket risk. In part three, we will discuss the Medicare Prescription Drug Program known as Part D.
Medicare Part D – the Medicare prescription drug plan was introduced on January 1, 2006. It is a government plan administered by private insurance companies that have a contract with Medicare to provide the service. Part D is optional, you don’t have to sign up. But, if you don’t sign up AND you don’t have prescription coverage from another source such as a retirement or employer plan, you will pay a penalty if and when you do sign up for Part D. The later you are, the bigger the penalty is, and you pay the penalty for the rest of your life. You can enroll when you are turning 65, then you can change plans every year during the annual enrollment period that runs from October 15th to December 7th. Once the December 7th deadline expires, you are stuck with your plan for the next calendar year. There are other special enrollment periods that come up from time to time, but most folks are going to be limited to their initial and annual enrollment periods.
There are two ways to get the coverage; either a stand-alone prescription drug plan (PDP) for people with original Medicare or combined with their Medicare Advantage plan (MA-PD). For most people, you must have Parts A and B or Part C – also known as Medicare Advantage. If your Part C plan does not include drug coverage then you would be allowed to get a PDP.
All Medicare prescription plans are cost-sharing plans. That means that YOU share the costs with Medicare and the insurance companies. If you have a PDP you will pay a monthly premium, an annual deductible ($0-$360 in 2016), and once the deductible is met, you will have either a copay which is a set flat fee, or a coinsurance which is a percentage of the total cost for each drug at the pharmacy.
This is one area where the Medicare website can be very useful. That website can tell you exactly which PDP will be the best for you each year based on your current prescriptions. If you enter you current prescriptions, it will tell you what your total out of pocket costs will be for the entire year for each plan that is available in your area. That includes the premiums you pay, the deductibles, and the copay/coinsurance at the pharmacies. It will even tell you which pharmacies are the best priced for your prescription and plan.
It is very important that you check with the Medicare website (or your favorite independent insurance agent) every year during the annual enrollment period to see if your plan is going to be the best plan for you in the upcoming year. Both PDPs and MA-PDs are one year contracts. That means that they are subject to change every year. Any or all aspects can change. The plan that you have may work just fine this year, but one small change in the plan formulary or copay structure can costs you major dollars out of pocket if you fail to re-evaluate.
Part D has built into it a gap in the coverage, not-so-affectionately known as the Doughnut Hole. There are four distinct phases of coverage during each year. Listed in order they are: Deductible, Initial, Gap, and Catastrophic. During the deductible phase, you are the only one paying full price for your drugs until you have satisfied your deductible ($0-$360 in 2016) if you have a $0 deductible plan then you skip this phase and move straight to the initial phase. In the initial phase, you share the cost of your drugs with the insurance company. You pay the copay/coinsurance and the company pays the rest. Then when your total drug costs including what both what you and in the company have paid reach $3310 in 2016 you will enter the gap phase. In other words you have just fallen into the Doughnut Hole. Once again, you are the only one paying. There are some discounts that help, but no money. Now, when your total costs from the first of the year reach $7062.50 you come out of the doughnut hole and enter the catastrophic phase. Now, Medicare will pay 95% of the bill and you pay the remaining 5%. Until January 1st when it starts all over again.
Based on your prescriptions you may never reach the gap, or you may get in and out of the gap very early in the year. The unlucky ones are the people who reach the gap mid-year and never get out before January 1st.
Again, finding an experienced independent agent to help you with this process each year will make a world of difference as well take the stress out of the process. Next time we will wrap up our series with a discussion of Medicare Advantage Plans.