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Part D – Medicare Drug Coverage

The Medicare approach to prescription coverage always counts drug costs separately from health benefits.  Even with a Medicare Advantage Prescription Drug (MAPD) plan that includes Rx coverage, costs for outpatient drugs follow the same standard benefit structure as any stand-alone Prescription Drug Plan (PDP).  To understand how the system works, first we’ll go over the four phases of the plan year from Deductible to Catastrophic Coverage.  Then we’ll look at when beneficiaries can sign up for Medicare prescription drug coverage, what happens if you go without creditable coverage.

Medicare Drug Coverage

Medicare PDP and MAPD plans are provided by private insurance companies under annual contract with the Centers for Medicare and Medicaid Services (CMS), which sets the minimum standards of what medications can be and must be included on each plan’s unique list of covered drugs (formulary) and the maximum amount allowed for an annual deductible if the plan has one.  Insurance companies build networks where preferred pharmacies can offer lower copays and they create plans with a wide range of premiums and different ways of assigning covered drugs to cost sharing tiers.

When coverage begins the beneficiary must pay 100% of the plan’s negotiated price for covered drugs until the annual Part D Deductible amount has been spent, before the plan begins sharing costs.  Many plans waive the deductible for lower tier prescriptions and some plans have no deductible at all.  The maximum Part D deductible allowed by CMS in 2022 is $480.

After the deductible, if any, members pay the Initial Coverage copays (a dollar amount) or coinsurance (a percentage) until the total cost of covered drugs (including payments by the plan) reach the Initial Coverage Limit, which is $4430 in 2022.

In the next phase known as the Coverage Gap or the “Donut Hole” members pay 25% coinsurance for generics and brand name drugs.  This phase lasts until the member’s out of pocket costs combined with manufacturer discounts during the coverage gap reaches the catastrophic limit of $7,050.

For the rest of the calendar year, the member pays the greater of 5% or the Catastrophic Coverage copays for covered generics ($3.95 in 2022) and brand name drugs ($9.85 in 2022).

Initial Enrollment Period (IEP) at age 65 is usually the first opportunity to sign up for Part D coverage either through a PDP or an MAPD plan.  Those who miss this window could later face a lifetime Part D Late Enrollment Penalty of 1% of the national average premium ($33.06 in 2022) for each month they went without Medicare Part D - unless they are covered by veterans benefits or a group plan that provides “creditable” prescription drug coverage (at least as good as Medicare’s minimum standards).

Once the three months following the month of turning 65 has passed, the next chance to sign up or change plans is during the Annual Enrollment Period (AEP) every October 15 through December 7 for coverage effective the following January 1.  As plans and needs change, we update recommendations for our customers during this yearly review time.

Leaving employer group coverage based on active employment, such as when retiring or going part time, and enrolling in Medicare after turning 65 provides a Special Enrollment Period (SEP) to select a PDP and coincides with an Initial Coverage Election Period (ICEP) to select a Medicare Advantage plan.  At the time of enrollment, your residence must be in the plan’s service area and if you move that provides an opportunity to change.

Medicare Part D Low Income Subsidy (LIS) is a federal program that provides “Extra Help” with prescription drug costs including reduced copays, a reduced deductible, and a reduced premium for households under 150% of the federal poverty level.  That’s monthly income up to $1,610 for an individual or $2,177 for a married couple in 2022.  The benefits of “Extra Help” work with any PDP or MAPD plan.  Apply online at www.ssa.gov/i1020.

Our agents are skilled at assessing which plan choices provide a good fit for each customer’s current prescription needs and pharmacy preferences and help evaluate the trade-offs between different options.  We make it easy for you to get enrolled in whichever plan you choose.


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