Prescription drugs can be one of the most unpredictable parts of health care spending in retirement. Medicare Part D helps cover the cost of medications, but plans differ in which drugs they cover and how much you pay. Understanding a few key concepts makes comparing plans much easier.
How You Get Part D Coverage
Part D coverage is offered by private insurance companies that contract with Medicare. There are two main ways to get it:
- Stand-alone Prescription Drug Plans (PDPs), which you add to Original Medicare, with or without a Medigap policy.
- Medicare Advantage plans with drug coverage (MA-PDs), which include Part D benefits in the same plan as your medical coverage.
To join a Part D plan, you need Part A or Part B and must live in the plan's service area.
The Formulary: Which Drugs Are Covered
Each plan has a formulary, or list of covered drugs. Formularies must include a range of drugs in commonly prescribed categories, but the specific medications and brands can differ from plan to plan. Plans can also change their formularies from year to year, and in some cases during the year with notice.
Drug tiers
Most formularies organize drugs into tiers. Lower tiers usually include preferred generic drugs with lower cost sharing, while higher tiers may include brand-name and specialty drugs with higher costs. The same medication can sit on different tiers in different plans.
Coverage rules
Plans may apply rules to certain drugs, such as:
- Prior authorization: your prescriber must show the drug is medically necessary before the plan covers it.
- Step therapy: you may need to try a lower-cost drug first.
- Quantity limits: the plan may limit how much you can receive at one time.
If a drug you need is not covered or has restrictions, you or your prescriber can request an exception.
What You Pay
Part D costs typically include some combination of the following:
- Monthly premium, which varies by plan and may be higher for people with higher incomes.
- Annual deductible, which some plans charge before coverage begins. Some plans have no deductible or do not apply it to lower tiers.
- Copayments or coinsurance each time you fill a prescription.
Recent federal changes have added an annual cap on out-of-pocket spending for covered Part D drugs and created an option to spread drug costs into monthly payments. Because amounts are adjusted each year, check Medicare.gov or your plan documents for current figures.
Pharmacies Matter Too
Plans have pharmacy networks, and many have "preferred" pharmacies where your cost sharing is lower. Mail-order options may also reduce costs for maintenance medications. Before choosing a plan, confirm that your preferred pharmacy is in network and whether it offers preferred pricing.
Avoiding the Late Enrollment Penalty
If you go without Part D or other creditable drug coverage for a continuous period after your Initial Enrollment Period ends, you may owe a late enrollment penalty when you join a plan later. The penalty is added to your monthly premium and generally lasts as long as you have Part D. Coverage from an employer, union or other source may count as creditable; the plan should tell you each year whether it does.
Extra Help
People with limited income and resources may qualify for Extra Help, a federal program that lowers Part D premiums, deductibles and copays. You can apply through Social Security. Some states also offer pharmaceutical assistance programs.
Comparing Plans Each Year
A plan that fit well last year may not be the best fit this year. During the Annual Enrollment Period from October 15 to December 7, review:
- Whether all your current medications are on the formulary
- The tier and cost for each drug
- Any prior authorization, step therapy or quantity limits
- Premiums, deductibles and pharmacy network
The Medicare Plan Finder tool can estimate annual costs based on your drug list. A licensed agent can also walk through the comparison with you. This article is for general education and does not describe any specific plan.
