I. What Medicare Part D Covers

Medicare Part D provides significant assistance in paying for the drugs a doctor prescribes to be taken at home. It is not to be confused with the drug benefits provided under other Medicare parts. Part A, for example, is the Medicare inpatient insurance, which does pay the cost of drugs administered at the hospital, such as surgical anesthetics. Likewise, Part B can pay the cost of drugs administered in an ambulance or at a medical office, such as IV antibiotics. Drugs covered under Part D are typically the ones prescribed by a doctor and picked up at the pharmacy, which the beneficiary can take later at home.

Part D is not provided free of charge, though the monthly premiums in 2019 average just $33.19. In addition to the monthly premium, most Part D plans include a co-payment, co-insurance, and deductible requirements. Details of these costs vary with the geographic area of the country and various details of the beneficiaries’ plans.

Some policies, for instance, charge a $0 monthly premium, while others carry a high monthly cost but a low deductible. The maximum monthly premium allowed under Part D for 2019 is $415. Because these options are different for many beneficiaries, it is always helpful to speak with a program worker at a local Social Security office to better understand the options available in any area.

Seniors who meet certain income and asset limits may be able to get assistance with Part D costs through the Medicare Extra Help option. This project allows seniors with low incomes to pay $0 a month in premiums, no deductibles, and a 2019 maximum of just $8.50 for each plan-approved prescription filled.

Expenses Associated with Medicare Part D

It is common for Medicare Part D participants to pay their monthly premium, which may or may not be part of a larger Medicare Advantage plan that also provides hospital and outpatient benefits, along with an out-of-pocket cost for prescriptions that’s due at the point of service in the pharmacy. Early in the calendar year, many seniors have yet to meet their annual deductible, and so they may be asked to pay up to 50% of the medications’ list prices.

Once the spend-down has been met, beneficiaries are only required to pay the plan’s co-payment or coinsurance amounts, which may be either a fixed dollar sum or a percentage of the listed cost of the drug, with Medicare picking up the rest of the cost.

Part D benefits have a limit. In 2019, this limit is $3,820 for all costs combined in a single calendar year. This means that once a senior’s prescription drug costs have reached this amount for all payment sources combined — including payments from Medicare, payments from supplemental insurance, and payments out of pocket — Part D coverage ends and the “doughnut hole” gap in coverage begins.

Medicare Part D’s Doughnut Hole

The doughnut hole concept refers to the gap in coverage between Part D’s maximum annual amount and the catastrophic care minimum, which kicks in at $5,150 out of pocket, or a combined total cost of $7,654, for 2019. This gap represents over $3,800 in non-covered prescriptions in a single calendar year.

To help manage the doughnut hole, many seniors carry either a supplemental insurance policy they bought themselves on the state healthcare exchange or apply for Medicaid coverage to manage the costs between the maximum and minimum totals. Once the payment maximum has been reached, Medicare’s catastrophic coverage kicks in and pays all remaining costs for drugs for the rest of the year.

Coverage Tiers

Not all drugs are charged at the same rate. Medicare Part D plans generally organize medications into four categories, called tiers, for pricing purposes. In general, the lower the tier, the less beneficiaries are required to pay at the pharmacy for the prescription. Not all drugs are covered in the same way by every plan in any given area, so it helps to speak with a plan representative to find out which drugs are covered at what levels. Part D plans price their co-payments in such a way as to encourage recipients to buy the least expensive drugs possible. The Medicare Part D tiers are:

  • Tier 1 – Generic drugs and a small number of brand names. These are usually the least expensive drugs insurance can cover.
  • Tier 2 – Preferred drugs are usually brand names that have a proven record of being effective. These medications are relatively inexpensive, though they usually do cost more than generics.
  • Tier 3 – Non-preferred is a double category. Some of the drugs in this group are brand name medications that have not been proven to be the most effective in their class, and which may have to be prescribed by a doctor to work with drug allergies or other medications the patient is on. In the second group are preferred specialty drugs, which may be sold at a moderate discount due to their status.
  • Tier 4 – Specialty drugs are the most expensive option for Part D to cover, and as a result, they tend to have the highest co-payments due. These are brand name pharmaceuticals, all of them listed by Part D as non-preferred for one reason or another.

II. Eligibility for Medicare Part D

All seniors who are eligible for Medicare Parts A and B are automatically eligible for coverage under a Part D plan. Medicare Part D is provided exclusively by authorized insurance providers in the private sector, not Medicare itself, but the requirements for signing up and receiving benefits are set by federal law.

Citizens of the United States become eligible to sign up for a Medicare Part D plan on the first day of the month, three months before they turn 65. Thus, for a senior whose 65th birthday is on June 15, the eligibility period begins on March 1 of that year and ends on September 30. It is strongly recommended that seniors sign up for Part D coverage as early in the process as possible, as there is a three-month delay for prescription benefits to begin, and a delay that goes significantly past the midpoint of the enrollment period risks a gap in coverage. Enrolling in Part D outside of this seven-month window may also result in having to pay a higher premium as a penalty for late enrollment.

Some seniors choose to either keep their existing drug plan when they sign up for Medicare, or they choose a Part C, or Medicare Advantage, plan that includes medication. Medicare Advantage policies often include some drug benefits, but not every company offers this as an option. Check plan features with an expert before signing up for any Part D plan.

III. Enrolling in Medicare Part D

Seniors who have just turned 65, or who expect to do so soon, may apply for a Part D plan up to three months before their birthday, though it is possible to carry alternative coverage beyond the initial sign-up period and still transfer into it without incurring a penalty rate, if they meet certain conditions and activate a special enrollment period (SEP). An SEP lasts seven months and begins when a senior who is otherwise eligible for Medicare loses coverage that had been provided by another source.

An example of this is a worker nearing retirement, who had previously been provided with health insurance that covered some of the cost of prescriptions through work. When employment ends, as it does with retirement, then the clock begins ticking on Part D enrollment. Seniors can enroll in any Part D coverage they are eligible for during the SEP, with no penalty rate or denial of coverage.

IV. FAQs

Can I have Medicare Part D at the same time as Medicaid?

Yes. Medicaid is often used as a supplemental insurance plan for drug benefits, and some low-income Medicaid recipients are automatically enrolled in Part D at no cost when they become eligible to join.

What determines the price I pay for prescription drugs under Part D?

The point-of-service costs of drugs covered by the Part D benefit vary with several factors. The area of the country where coverage is provided has an effect, as does the specific tier the medication belongs to. Plan details vary by as much as private insurance policies do, and most seniors can choose either a low-co-payment plan with generally higher premiums, or they can opt into a low-premium plan with a high deductible.

Can people with disabilities get Medicare Part D coverage?

All seniors who qualify for Medicare, regardless of their physical condition, can sign up for Part D coverage through a private insurer. Applicants who sign up during the enrollment window must be offered a policy at group rates and cannot be turned down for coverage. After the open enrollment period, normal actuarial decisions can be made about offering Part D care.