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What is Medicare Part D?

  • Prescription Coverage is often referred to as Medicare Part D
  • Medicare coverage of prescription drugs is an optional benefit offered to everyone who has Medicare Part A or Part B, or both
  • Medicare Part D plans can help lower than the full market price of medicine
  • Automatic refill services through the mail may be a convenient option for some seniors
  • Medicare Part D plans are available through private insurance companies contracted by Medicare, but costs and availability may vary based on state and county

What is a Medicare Advantage Part D Plan?

To receive Medicare drug coverage, you must join a Medicare plan that offers coverage for prescriptions.

For example, you could have a stand-alone Prescription Drug Plan to go with Original Medicare Parts A and B. Alternatively, you could integrate both your prescription and medical coverage through a Medicare Advantage plan.

Both options are provided by private insurance companies who have entered a contract with Medicare.

If you have Medicare and Medicaid, your premiums can be covered for both Original Medicare Parts A and B, and the Part D Prescription Drug Plan.

Cost of Medicare and Social Security

Does Part D lower prescription drug cost?

The drugs in the plan’s formulary, or list of covered drugs, will have a lower price than what is offered on the open market.

Under Medicare Part D plans, a beneficiary would pay a copay rather than the full market price for their medication. The higher tier drugs in the formulary usually have the highest copay amounts.

The goal of reducing the overall costs to consumers involves preferences for lower-cost drugs, which include generics.

Plans sometimes ask prescribers to try step therapy, in which they agree to trial, using a specific lower-cost version of a high-tier drug.

Part D Prescription Drug Coverage

What is a PDP?

The simplest is a prescription drug plan, sometimes called PDP. These cover only formulary medications and uses a pharmacy network.

Certain pharmacies can offer preferred or standard level cost reduction on covered drugs.

Medicare Advantage Prescription Drug plans cover a wide range of prescriptions, from heart medication to cancer drugs.

Part D Prescription Drug Coverage

When do you enroll in Medicare Part D?

Several events lead to the initial open enrollment for Part D.

  • Ideally, the window to enroll in Medicare Prescription Drug coverage is the 7-month Initial Enrollment Period surrounding one’s 65th birthday.
  • People younger than age 65 with eligibility for Medicare due to disability get a 7-month Initial Enrollment Period. This IEP runs from the 22nd month of receiving disability benefits, and lasts through the end of the 28th month of receiving disability benefits.
  • For those already receiving Medicare due to disability and who are now turning 65, another 7-month IEP becomes available. During that time, a person can join a Medicare Prescription Drug Plan, or a Medicare Advantage plan that builds in Medicare Prescription Drug Coverage.
Part D Prescription Drug Coverage

What is the best time to enroll in Medicare Part D?

Ideally, the time to enroll in Medicare Part D is when one gets enrolled in Medicare A and B.

Further, if you enroll at the same time you start your Part A & B benefits, you will avoid a Late Enrollment Penalty when you do decide to elect a Part D plan. 

Otherwise, yearly enrollment periods provide opportunities to revise and change coverage options for Part D.

First, Annual Enrollment, the yearly time to add or change Medicare Advantage or Plan D plans runs from October 15 through December 7.

Next, the Medicare Advantage Open Enrollment, takes place at the beginning of each year, from January 1st through March 31st. In particular, this enrollment period applies if a person is already enrolled in a Medicare Advantage.

Regardless of whether their current Medicare Advantage plan includes prescription drug coverage, a person could switch plans. 

Accordingly, members can replace their current Medicare Advantage plan with any other Medicare Advantage plan.

Alternatively, a person could drop their Medicare Advantage plan to join a stand-alone Medicare Part D Prescription Drug Plan (PDP). 

Consequently, dropping a Medicare Advantage plan for a PDP means the person returns to Original Medicare’s Part A (Hospital) and Part B (Medical) coverage and network.

Part D Prescription Drug Coverage - Insurance Policy

Which Drugs Are Covered By Part D?

The Centers for Medicare and Medicaid Services (CMS) approves the drug formulary for each plan.

As a rule, plans must include at least 2 drugs in the most commonly prescribed categories or classes of drugs.

This effectively helps people with different medical conditions to get the prescription drugs they need.

CMS allows for changes in the list of covered drugs up to twice each month, when drugs are removed or new drugs are added.

Crucially, changes in the formulary may affect drug choices and coverage for the plan or members.

Law requires plans to provide 60-day notice to customers in advance of dropping a drug. Moreover, plans must give a 30-day notice when a formulary adds a low cost generic in place of a high tier drug.

Following suit, plans must provide at least a one-month supply of dropped drugs under the same plan coverage as before the formulary changed.

Part D Prescription Drug Coverage

Medicare Part D Costs

Enrollees can authorize an automatic deduction from Social Security for Part D premiums.

Out-of-pocket costs include deductibles, copays, and coinsurance. These vary by the plan chosen and the prescription needs a person has.

The costs for Part D prescription drug plan premiums differ by state and county, as well as the insurance carrier that offers them.

Other than that, high income can affect Part D premium cost. High-income earners must pay an Income Related Monthly Adjustment Amount, or IRMAA.

This is a premium adjustment fee that slides on a scale for household income above $87,000 per year when filing taxes as single, or $174,000 when married filing jointly.

The Social Security Administration determines Part-D IRMAA fee scale based on income

Part D Prescription Drug Coverage

What's the Late Enrollment Penalty for Part D?

The late enrollment penalty adds cost to the Medicare Part D monthly premium. In consequence, it becomes part of the premium to maintain Part D coverage.

Generally, the penalty applies to applicants who go without prescription medical coverage for more than 63 consecutive days. After the Initial Enrollment Period’s final date, the clock starts ticking.

Whether through a Medicare Advantage Prescription Drug plan or a stand-alone PDP, the Late Enrollment Penalty remains permanently. 

To clarify, the penalty derives from national average costs for prescription drug plan premiums. 

As of 2021, the U.S. has $33.06 Part D average premium. Therefore, the penalty of 1% of this national average cost rounds to about $0.30 permanently added to Medicare Part D premiums.

The penalty multiplies this additional 1% for every full month that the person was eligible, but did not have Medicare Part D coverage. The premium penalty rounds up to the nearest tenth cent ($0.10).

Alternatively, coverage through an employer as strong as Medicare Part D will meet requirements. As a result, no late penalty would apply.

Part D Prescription Drug Coverage

Coverage Gap

The coverage gap kicks in after exceeding a certain amount spent on prescription drugs in the course of a single year.

When reached, beneficiaries do not get the full benefit of drug discounts. Bear in mind, the amount spent may change annually.

In short, the coverage gap places a temporary limit on drug discounts after spending $4,130 on covered drugs in 2021.

Even then, this does not affect people who get assistance from the Extra Help program.

In this gap, the coverage fails to reduce prices effectively, up until a certain amount spent. The coverage gap results in spending more on drugs, potentially up to a Catastrophic amount, when savings resume.

The program reform will reduce the participant’s share to 25 percent in 2021—only the amount paid by participants for formulary prescription drugs counts as an out-of-pocket expense.

Short-term adjustments include allowing copays and coinsurance as out-of-pocket spending to get some participants to the catastrophic threshold faster.

The drug plan’s premium, as well as what is paid for prescription drugs that are not covered under the plan’s formulary do not count toward exiting the coverage gap.

With that said, brand-name and generic drugs will not exceed 25 percent of their full cost while a person is in the coverage gap.

Although members pay no more than this for brand-name drugs in particular, nearly the full cost of brand-name drugs will count toward the out-of-pocket expense limit for getting out of the coverage gap.

Brand-name drugs purchased while in the coverage gap will significantly reduce the time it takes to get out of the coverage gap.

In 2021, that out-of-pocket expense limit is $6,550. After spending this much, Catastrophic drug coverage begins.

Part D Prescription Drug Coverage

Catastrophic Coverage

Ultimately, this benefit relieves Medicare participants who must pay a significant amount each year for prescription medications.

Catastrophic coverage begins after participants have passed through the coverage gap. Upon reaching the catastrophic out-of-pocket spending threshold for that year, drug savings resume.

In 2021, that limit is $6,550 spent on formulary prescription drugs.

Catastrophic coverage begins automatically and immediately, and lasts only for the remainder of that calendar year.

It assures that participants will only pay a small copay or coinsurance with each prescription through the end of the calendar year.

As of 2021, refills on brand-name drugs will not exceed $9.20 and generic drugs will not exceed $4.00 during the Catastrophic coverage phase.

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