Medicare Part D Explained 2023

I understand how confusing Medicare can be.  I help people with their Medicare decisions every day. My mission and my agency’s mission is to help you make an informed decision about your Medicare choices. That is why in this video I will go over the Medicare Part D prescription drug program.

This is the prescription drug portion of my Medicare Explained video series which includes my videos titled Medicare Explained, Medicare Supplement Plans Explained, Medicare Advantage Plans Explained and How To Sign-Up for Medicare.  You will find all those free educational videos, plus dozens more when you subscribe to my channel.  Or, you can just type in #MedigapSeminars in your YouTube or Google search bar.

We offer Medicare Part D plans through our Part D Shopper.com website.  PartDShopper lists all the prescription plans I recommend allowing you to both shop and self enroll from that platform.

Understanding the Medicare Part D

Prescription Drug plan is important because it is one of the areas of Medicare where you, the consumer can make some of the most expensive mistakes in Medicare.   I am going to help you avoid those mistakes in this video.

I have structured Medicare Part D Explained portion of this series into two videos.  This video, the first of the two, is for everybody on Medicare.  It is what you need to know about Medicare Part D whether you are currently not on any prescriptions or are already spending thousands of dollars on your prescriptions.  The second part will be mostly for people who have many prescriptions, or very expensive prescriptions.  The second section will cover concepts like the Coverage Gap (which used to be the Donut Hole) and catastrophic coverage and Low-Income Subsidy.  Those are important concepts to understand if you are spending thousands of dollars a year on medications but are not necessary information for those who whose prescription costs are minimal.

If this is your first time through this video, you might want to get a pen and paper handy. We are going to cover a lot of information.  It’s important because, as I mentioned earlier, mistakes can be costly.  Let’s get started with the basics.

Medicare Part D Penalty

Some people think the financial penalty is the worst that can happen when you go without a Part D plan.  No, there is much worse that can happen.  I cover this is my video Medicare Part D Penalty – What You Need to Know.  

Which Part of Medicare Pays for Your Prescription?

There are four different ways you can be prescribed a medication.  How your medication is prescribed and administered will determine which part of Medicare is responsible for payment.

First, you can be prescribed medication when you are an inpatient in a hospital.  This is medication you can only take while you are an inpatient and you cannot take it home with you.  This may include daily medications you are currently taking at home and will need to continue during your hospital stay.    Medication provided to you while you are an inpatient in a hospital is covered under Medicare Part A, inpatient services.

Second, you can be prescribed medication that is administered by a medical professional at a medical facility.  This could be anti-inflammatory infusions, some chemotherapies, shots etc.   Prescribed Medication administered by a medical professional in a medical facility is typically covered under Medicare Part B, outpatient services.

White Bagging and Brown Bagging

Third is a concept called Brown Bagging and White Bagging prescriptions.

This is important and has become more common in recent years.

Brown Bagging is when a pharmacy delivers a prescription to the consumer who then brings that prescription to the doctor’s office to be administered by a professional.

White Bagging is when the pharmacy delivers a patient’s prescription directly to the doctor’s office.  A medical professional then administers the prescription to the patient.

Brown Bagging and White Bagging are growing trends in medical care because they take prescriptions that would have normally been covered under Medicare Part B outpatient services and transfers the cost sharing burden to your Medicare Part D prescription drug plan.  In doing so it relieves the financial pressure placed on a doctor’s office to purchase and store these medications which can cost thousands of dollars.  Although it is a growing trend, it is reserved for very expensive specialty drugs like some chemotherapies.

The fourth way to be prescribed medication is when your doctor writes a script and you pick up that prescription at a pharmacy or via mail order and then self-administer the prescription.  This could be a pill, a self-injectable pen, an ointment an inhaler and so on.  You pick up the prescription and administer it yourself.   Prescriptions of this nature are covered under your Medicare Part D prescription drug plan.

So the simple rule of thumb is that if you are picking up a prescription from a pharmacy or via mail order and you are self-administering that prescription, it will be covered under your Medicare Part D prescription drug plan. Otherwise it is typically covered by a different part of your Medicare.  The exception is the Brown Bagging or White Bagging concept that pertains to very high cost specialty prescriptions.

Part D Plan Characteristics

The first thing you need to know about Medicare Part D prescription drug plans is that all Medicare Part D plans end on December 31 of each and every year.  These are one-year, calendar year plans.  Whenever you get a plan your commitment to the insurance company and the benefits they promised in the policy are just until December 31.

The second thing to understand about Medicare Part D plans is that every plan is different.  They are the exact opposite of a Medicare supplement plan. As you may already know depending on where you are in your research, the benefits of a Medicare supplement plan are standardized to be identical from one insurance company to another and can never change. It is not that way with Part D prescription drug plans.

Medicare Part D plans are regulated to meet certain minimum requirements. For example, they all must cover a minimum of two drugs from every category.  That means at least two high blood pressure medications and at least two statins for cholesterol and so on.  In addition, they must cover all or substantially all the available prescriptions from six protected classes.  The protected classes are immunosuppressants, antidepressants, antipsychotics, anticonvulsants, antiretrovirals and antineoplastics, which are medications used treat cancer and more commonly referred to as a chemotherapy or anticancer prescriptions.  (antineoplastics)

Every Part D Plan must cover substantially all prescriptions available in those six protected classes.

To recap; Medicare Part D plans are regulated to meet certain minimum requirements and must cover prescriptions from every category or condition.  But each plan is different, covers different prescriptions and can charge different prices for the same prescription.

Medicare Part D Formulary & Tier

There are two terms you will need to know regarding Part D Plans.  You might want to write this down.   The first term is Formulary.   The second term is Tier.

A Formulary is the list of prescriptions covered by that Part D plan.

Within the formulary the drugs are categorized by Tier.

Formulary is the list of drugs covered by the Part D Plan. Tier is the price level or cost sharing in which they are categorized.  There are typically five Tiers, I have seen six tiers in some plans.  Tier 1 typically consists of your most common generic prescriptions.  These are your lowest cost prescription drugs.   Tier 2 may include some generic prescriptions and some preferred brand name drugs from manufacturers contracted with your Part D insurance company.  Tier 3 typically consists of brand name drugs.  Tiers 4 and 5 are your most expensive specialty prescriptions.

Keep in mind, because each plan can choose which manufacturers with which to contract, A Tier 3 drug with one plan may be a Tier 2 drug with another.  It is the individual Part D drug plan that will categorize your prescription into a tier based on their relationship with the manufacturer of the drug.

Each Part D plan must also have a process for you where if you are prescribed a drug not covered by your plan(not on their formulary), the Part D plan must allow you and your doctor a simple and fair appeals process to have the drug covered just for you.

But beyond the regulated characteristics each plan is different. They have different premiums. They charge different prices for the same prescription.  Also, each Part D plan may utilize a different group of network pharmacies.  That means that some Part D plans may have their best prices through CVS, some through Walmart or Costco and same through Walgreens etc.  Do not assume that the pharmacy with the lowest prices using your current insurance will also have the lowest prices with your new Part D plan.

Now a common mistake that people make is to assume that higher premium Part D plans offer more than lower premium plans.  That’s not true.  The pricing of Part D premiums is not like buying clothes or a car.  The average premium for a Part D plan is approximately $35 /month.   Lower premium plans are primarily designed for people with few or just generic prescriptions. Higher premium plans are designed for people with expensive prescriptions.  I get into why in my second video on Part D plans.  Just keep in mind that a higher premium does not mean a better or more comprehensive plan.

I have seen too often where people with a modest level of generic prescriptions purchase a high premium Part D plan thinking it offers more coverage.  Then they end up paying a high price for their generic prescriptions and hundreds of dollars more than they should in premiums.  More on that in the second video.

Considering all of the above, this means that we cannot determine the right plan for you without taking into consideration your specific prescriptions, the pharmacy you wish to use and how much the Part D insurance company will charge you for the prescriptions you know you will be taking in the year ahead.    In fact, most insurance companies offer multiple Medicare Part D plans to target people in different situations.

The third characteristic to understand about Medicare Part D plans is that any feature of a Medicare Part D plan can change from one calendar year to another.  It’s a moving target.  The price can change.  The benefits can change.  The prescriptions covered can change and so on.  In fact, in each of the last few years I have watched as insurance companies outright cancel one plan and introduce new plans.  Because the benefits change each calendar year, you have the right to shop for a new Part D plan every year. You will use the Annual Election Period, from October 15 through December 07 of each year to review next year’s plans and decide if you want to stay with the plan you have or change to a new plan.

Your new Part D prescription drug plan will then start as of January 01.

Stand-Alone or Bundled

This brings us to enrollment periods.  But before we can go through when you can purchase a Part D prescription drug plan, we must first cover an important point about how you can get a Medicare Part D plan.  This point is critical because I have seen people accidentally cancel their Medicare coverage and not know it with this one mistake.

You can get a Medicare Part D Prescription Drug Plan in one of two ways.

The most common way people get a Part D prescription drug plan is via a Stand-Alone Part D Plan also called a Stand-Alone PDP plan.  A stand-alone plan is just that, a separate plan not linked to any other parts of your Medicare.  This is typically for people who want to keep your Original Medicare Part A and Part B.  You would typically also have a Medicare supplement plan to limit your risk and use the Stand-alone Part D plan for your prescriptions.

The great part about a Stand-Alone Part D plan is that each year you can use the Annual Election Period (AEP) to shop for and enroll in the best Part D plan for your situation without having to make changes to any other part of your Medicare.

The second way you can get a Part D plan is to have one bundled with a Medicare Advantage plan. Most, not all, Medicare Advantage Plans come bundled with a Part D prescription drug plan.  These are referred to as Medicare Advantage Prescription Drug Plans or MAPD for short.

As I detailed in my Medicare Advantage Plans Explained video, when you get a prescription drug plan bundled with your Medicare Advantage HMO or PPO plan you must take the Part D plan offered.  You may not shop for a better Part D Plan.  Because your healthcare, your Medicare Advantage plan, is bundled with your Part D plan, you cannot change one without changing the other.

When you get a Part D prescription drug plan bundled with your Medicare Advantage plan, the cost of prescriptions, the premium and deductibles and maximum out-of-pocket are all calculated separately from your Medicare Advantage plan benefits.  That is an important concept to understand.  With a Medicare Advantage Plan your maximum out-of-pocket costs do not include the costs involved with your bundled Part D prescription drug plan.  The costs associated with your bundled Medicare Part D plan are in addition to the maximum out-of-pocket limits set for your Medicare Advantage plan.

So, you get a stand-alone Part D when you want to keep your Original Medicare. You can shop that each year and it has no impact on your supplement or any other part of your Medicare.  When you get a Medicare Advantage HMO or PPO, the Part D plan is bundled. You cannot change your Part D without changing Medicare Advantage Plans.

Now, this is critically important where you can accidently lose your Medicare.

You cannot have a Stand-Alone Part D Prescription Drug Plan and a Medicare Advantage HMO or PPO at the same time.    Medicare will not allow it.   If you have a Stand-Alone Part D plan and you enroll in a Medicare Advantage PPO or HMO, Medicare will kick you out of your Stand-Alone Part D Plan.    If you have a Medicare Advantage HMO or PPO and you enroll in a Stand-Alone Part D Plan, Medicare will kick you out of your Medicare Advantage Plan.  It does not matter if your Medicare Advantage Plan HMO or PPO included a Part D plan or not.  You are not allowed to shop for your own separate stand-alone Part D Plan when you have a Medicare Advantage Plan HMO or PPO.    Period.

Medicare Part D Enrollment Periods

Understanding the enrollment period is critically important because you cannot just enroll in a Medicare Part D prescription drug plan whenever you want.  Missing an enrollment period is one of the most common mistakes made with Medicare Part D.  This is because many people are focused on their Medicare supplement and don’t realize that the Medicare supplement and Medicare Part D enrollment periods are completely different.

Let’s take a closer look and hopefully make some sense out of these rules.

It is easiest to understand enrollment periods for Medicare Part D prescription Drug plans when you categorize them.

First there is an Initial Enrollment Period.  This is your first enrollment period when you are first eligible for Medicare.  For most of us that is the period when we are just turning 65.

A second group of enrollment periods are Annual Enrollment Periods.  These happen every year, year-in and year out. They are based on a calendar year period.

Last, but not least are Special Enrollment Periods.  A Special Enrollment period is triggered by an event.  It can be an event you initiated or an event that was forced on you and is involuntary. That creates a Special Enrollment Period.  Here are the details …

Initial Enrollment

Your first Medicare Part D enrollment period is your Medicare Initial Enrollment Period.  This is the seven-month period that includes the month you turn 65.  It is three months before your birthday month, your birthday month, and the three months after your birthday month.   This is your first opportunity to enroll in Medicare Part A and Medicare Part B.  You can also use this period to enroll in a Medicare Part D prescription drug plan.

If you miss your initial enrollment period, you will have to wait for an annual enrollment period to get a Part D prescription drug plan or a General Enrollment if you missed enrolling in Medicare entirely.

Annual Enrollment Periods

You have one annual enrollment period you need to be aware of. It is called the Annual Election Period aka AEP.  The Annual Election Period is the most important election period next to your initial Enrollment.

The Annual Election Period is from October 15 through December 07 each year.  You should mark those dates on your calendar; October 15 through December 07.

This is a brief window of time when you get to see what benefits and prices have changed for the next calendar year.  If you have no desire to switch to a new plan, then you do not need to do anything.  You will roll over to the next year’s version of the Medicare Part D plan you are currently enrolled in.  If you do wish to make a change, then you simply apply for the Part D prescription drug plan that best fits your needs.   Medicare will transition you to the new plan as of January 01.

One unique characteristic of the Annual Election Period is that you can make as many changes as you wish during that period.  You can select one Part D plan, then change your mind as much as you wish during this time.  Whatever Part D plan or Medicare Advantage Plan was the last plan you applied for will be the plan you are committed to for the next calendar year.

Ending Employer Coverage

Now let’s take a look at Special Enrollment Periods. As I indicated earlier, these are enrollment periods triggered by an event.

The first is when your creditable coverage ends.

If you decide to not enroll in Medicare as your primary insurance when you turn 65 and instead utilize creditable employer group coverage, then your Medicare Part D prescription drug plan Special Enrollment period is the first 63-days after your creditable coverage ends.

This is another period where mistakes are common.  When a person decides to end their employer group coverage, they will typically enroll in Medicare Part B for the very first time.  They will learn that the have a six-month window to enroll in a Medicare supplement and assume that same window is available for enrolling in Part D prescription drug plan.  It is not.

You have only 63-days from the end of your creditable coverage to select and enroll in a Medicare Part D prescription drug plan.

In addition, once you enroll in a Part D Prescriptions Drug plan during this period, your Special Enrollment period ends.  In other words, you have one chance to enroll in a Part D plan during any special enrollment period. Once you submit an application, your special enrollment period comes to a close.

When You Move

You also have a Special Enrollment Period when you move.  Why would this be?  Why can’t you keep the same drug plan in Texas that you had in California? Because your Medicare Part D plan is local coverage.  It is not national coverage like your original Medicare or a supplement.  You can still get prescriptions while out-of-town or traveling within the United States.  Of course.   But if you move to a different county or a different state, you will need to get a new Part D prescription drug plan based on your new zip code.  It may be an identical plan, but its premium structure is based on your new address.

When you move you have 63-days from the date of move to get a new Medicare Part D Plan.  You can apply for a new plan up to 30-days before you move, or up to 63-days after.  Once you select and apply for a new prescription drug plan, your special enrollment period comes to an end.  You only get one choice during that Special Enrollment Period.

Recap

The enrollment periods we just went through are not all the enrollment periods or special enrollment periods that may pertain to a Medicare Part D Plan.  That list, in its entirety, is much too comprehensive for this video.  However, the ones I covered are the most common by a wide margin and the ones most often misunderstood and most error prone.

The most important concept I can stress is that your Medicare Part D enrollment periods are not related to Medicare supplement enrollment periods.  Please do not confuse the two.

Medicare Part D Penalties

Of course, if you do error and go without Part D coverage or a creditable alternative there are financial penalties.  I have a separate video specifically on that subject linked below.  I am not going into detail on that here except to say that the biggest potential penalty for not having a Part D plan is not the financial penalty levied by Medicare.  It’s the fact that if you do not get a Medicare Prescription Drug Plan when you are initially supposed to, you can only get a plan during the Annual Election Period to start January 01.   There are prescriptions for major illnesses that can bankrupt you if you don’t have a Part D plan.  I have seen it happen more than once.  The entire purpose of insurance is to transfer the financial risk of an event onto that of an insurance company.  That way we don’t turn a health crisis into a financial crisis.  Risking a financial crisis to save $20 or less a month in Part D premiums just isn’t worth it.

Two more Points before we close out this section of the video.  These next two are very often misunderstood and misinterpreted.  Yet they are critical to understand when you are shopping and comparing Medicare prescription drug plans.  In other words, we have seen people make a lot of expensive mistakes because they do not understand what I am about to share with you.

Deductible

Most Medicare Part D prescription drug plans have a deductible.  A deductible is the amount of money you spend before you receive any benefits.  The maximum deductible is set by Medicare.  What is not clearly communicated via the government website is that many of the most common drugs are exempt from the deductible.

Every year Medicare sets a maximum allowable deductible for Part D plans.  For the year 2020 the maximum deductible was $435.  For 2021 the same deductible is $445, an increase of $10.

Most plans will exempt the lower tier prescriptions from the deductible.   With many plans Tier 1 and Tier 2 prescriptions are exempt.  Please do not assume that the Part D deductible pertains to all prescriptions.  Our website Part D shopper shows you if there is a deductible and, if so, which Tiers are exempt.

Restrictions Prior Authorization / Quantity Limits / Step Therapy

To control costs, a Medicare Part D prescription Drug Plan can restrict or limit some of your prescriptions.  Keep in mind, most prescriptions that are processed are only limited by your doctor’s orders.  However, an insurance company can set limits.  In some cases, it is to save money, in other cases like opioids there are Federal restrictions.

I am going to go through each of the three different methods in a moment, but it’s important to understand that these can change significantly from one insurance company to another.  Don’t assume the restrictions set by one company will be repeated by other companies.  As you shop for a Part D Plans you want to review the restrictions and compare.  And of the three, there is one restriction I strongly recommend trying to avoid.

Prior Authorization

The first restriction is the least inconvenient; Prior Authorization.   If there is a prior authorization limit on your prescription it simply means that the doctor must check with the insurance company before prescribing the drug.  This is usually done electronically and often while you are still in the doctor’s office.  It’s inconvenient, but no more.

Quantity Limits

The second potential restriction is Quantity Limits.  This is where the insurance company will limit how much of the prescription, they will permit during a time period.  Sometimes a prescriptions quantity limit is set so high that most people will never be limited by them.  For example, it may say you can receive no more than 200 pills a month, and your prescription is set at 90 pills per month.

When you have two competing Part D plans with similar costs, you should review the drug limits, if any, to help find the right plan for you.

Step Therapy

Step Therapy is the most inconvenient and possibly disruptive of the three ways a Medicare Part D Plan can limit your prescriptions.  If your prescription is limited by Step Therapy, it means you will have to try lower cost alternatives first.  Only if the lower cost alternatives fail to resolve or control your medical condition can you step up to the higher cost prescription your doctor recommends.

If you are ready now to start shopping for your Medicare Part D Prescription Drug plan,

you can go to PartDShopper.com where I have an easy to use Medicare Part D Plan Finder for you to use.  You will also find a link on my website: MedigapSeminars.org

With PartDShopper.com I only show plans from the Medicare Part D insurance companies I recommend.  You will find this system much easier to use, it has more detailed information and is much more consumer friendly than the Medicare website.  Even more, when you use the PartDShopper.com  I will be notified and then be your agent of record.  That way, if you have any issues with Part D we can help as your agent.

Yes, I will be compensated as well.  In fact, in Part two of this video I detail how and how much an insurance broker is compensated for Part D plans.

If you are new to Medicare by just turning 65 or simply new to Medicare Part B, or if you have an existing Medicare Supplement and due to recent price increases want to know if it’s an overpriced Medicare Supplement, we can help.

Our service is free. You cannot save money or reduce your Medicare Supplement premiums by not using our service. As an independent insurance broker, we offer all Medicare Supplement plans from all major carriers. We put all the cards on the table for you and show you all your options and costs. That alone saves you days of work.  Then you decide the right plan and company for you. When you work with us, the insurance company you choose to insure you will pay our commission out of their pocket, not yours. You cannot reduce your premium by doing it yourself.

Here are the links promised in the above video:

• Your Guide to Medicare Prescription Drug Coverage
• Social Security – Do you Qualify for Extra Help?
• State Pharmaceutical Assistance Programs
• Manufacturer Pharmaceutical Assistance Programs 

Welcome to Part two of Medicare Part D Explained.  This is a continuation of the Medicare Part D Explained first video.  While the first video included information about Part D for everyone researching their Medicare options, this video includes more advanced concepts that are important to those who are paying hundreds of dollars a month for their prescriptions.   I will assume in this video that you have already seen Part 1 of Medicare Part D Explained.

Hi I am Matthew Claassen with MedigapSeminars.org.  We are an independent insurance broker helping people with their Medicare and retirement needs in 49-states from Hawaii to Virginia and Alaska down to the Florida Keys.  We are a true independent insurance broker.  That means we work with all the major insurance companies and offer all Medicare supplement plans.  Most of all, we represent your best interest, not that of any insurance company and our services are free to you the consumer. Check out our 5-star ratings, then contact us.  You will be glad you did.

Our service is free. You cannot save money or reduce your Medicare Supplement premiums by not using our service. As an independent insurance broker, we offer all Medicare Supplement plans from all major carriers. We put all the cards on the table for you and show you all your options and costs. That alone saves you days of work.  Then you decide the right plan and company for you. When you work with us, the insurance company you choose to insure you will pay our commission out of their pocket, not yours. You cannot reduce your premium by doing it yourself.

In this video we are going to talk about the four stages of the Medicare Part D prescription drug coverage.  This includes the deductible, your initial coverage, the coverage gap (formerly referred to as the donut hole) and catastrophic coverage.  We will discuss these stages are impact by your TROOP (True Out-Of-Pocket Expense).  Then last, but not least I will touch on Low Income Subsidy options that can be used to help relieve the financial burden of prescription drugs and Part D premiums for those who qualify.  If you are having difficulty paying for your prescriptions, this will be very important for you.

If you are spending a lot of money on prescriptions it is important to understand each of these four stages and how the right Part D plan can help you manage your out-of-pocket costs.  My objective is to help you understand what you need to know about Medicare Part D plans so that you do not spend more than you have to for your prescriptions.

Why am I doing this video for you?   I think that is a fair question for you to ask.

In past videos including the ones titled  “Do I Need an Insurance Agent for Medicare?”, “Medicare Advantage Plans Explained” and “Medicare Supplement Plans Explained” I have detailed how we, as independent insurance brokers, are paid and who pays us. The consumer doesn’t pay us.  I believe it’s important to share this information because you need to know what motivates a salesperson when you accept their advice.

With Stand Alone Medicare Part D plans, CMS (Center for Medicare and Medicare Services) sets the maximum allowable commission each year.  You can Google this information searching for  “CMS Maximum Medicare Advantage or Part D commissions”.

As of the making of this video, if you use our services to purchase your Part D plan and you are new to Medicare.  It’s your first Part D Plan.  We are paid a onetime payment of $81.   If you are simply re-shopping for a Part D, it’s half of that at $41.

In order to even offer a Part D plan we have to go through Federal re-certification each year, which takes a full weekend.  Then the same recertification for each insurance company we work with, which can take six to eight hour per company.  In general, it takes about a full one week to ten days each year just to be able to talk about and offer Medicare Part D Prescriptions Drug Plans.  And it takes that much time again just to make a video like this one. I am not a natural personality in front of a camera.

Obviously, we can’t make a living just selling Part D Medicare Plans.  Which is why we also work with Medicare Supplement Plans, Medicare Advantage Plans, Dental, Vision Hearing, Life and Final Expense, Cancer Protection and so on.

But there is a reason that I am making this video that goes beyond all of that.  I want to share that with you because I believe it’s important.

Back during the Annual Election Period of 2016 I was helping a gentleman with his Medicare supplement plan.  He was in his mid-70s and had an AARP / United Healthcare Medicare supplement he purchased when he was 65.  It had become very expensive and so I save him about $800 a year by moving him to a different company.  Well, the person who sold him the Medicare supplement was a captured agent, he worked as an employee of United Healthcare and so also sold him a United Healthcare Part D prescription drug plan.  So after saving him money on his supplement he asked me if I could help him with his Part D.

Begrudgingly, I said yes.  We went over his situation.  For ten years he just rolled over his drug plan and never shopped for new plans during AEP.  I found he was spending almost $11,000 a year on his prescriptions.  Almost $1,000 a month.  Wow.

So, we looked at the plans that were available to him using the Part D Plan Shopper.  I found a Part D plan where his entire cost for the year, premiums, prescriptions, deductible everything was a little over $1,600.  He went from $11,000 a year to $1,600.

That was when he started to cry.  This was, it impacted me.   So, I was uncomfortable and said something like Hey, I know it was hard, but it’s fixed now.  You’ll be fine.

He replied, and I will never forget.  He said “You don’t understand.  I can see my grandkids now.”

Medicare is not a perfect Health Care system. It’s complex and full of potholes.  Your responsibility is to try to understand it as best you can and to re-shop your Part D prescription drug plan every year during the Annual Election Period.  Even if you like your current plan.  Your current plan can and will change each year.  If you fail to shop your plan or if you make a mistake because of what you don’t understand, you can end up paying much more than you should for your prescriptions.

I am going to go over the four stages of your Part D prescription drug coverage.  It might be worthwhile to take notes.

Stage One of Medicare’s Prescription Drug Program – The Deductible

The first stage is the deductible.   A deductible is the amount of money you pay before your insurance will pay any benefit.   Each year Medicare sets a maximum deductible that a Medicare Part D plan can charge. They can charge the maximum.  They can charge less than the maximum or have no deductible at all.   For 2021 the maximum Medicare Part D deductible is $445.  I would suspect the amount of the deductible will continue to increase a little each year.

There are a couple things that are important to understand about the deductible that you will not find on the Medicare Plan Finder on the government website.   First is that with most insurance companies the deductible only pertains to higher tiered prescriptions.

You may recall in Part One of this video that a tier is a level of cost or cost sharing to you, the consumer.  Most Part D plans have five tiers with tier one being the lowest cost, most common prescriptions.  On my Medicare Part D shopper (linked below) you can easily see if your Part D plan exempts any tiers from the deductible.  Exempting tiers one, two is the most common.  I have seen some plans also exempt Tier 3 as well and at least one low premium plan only exempt only Tier one.

Again, the Medicare.gov Part D Plan shopper leaves a lot to be desired.  It simply does not offer the helpful detail you need to evaluate and compare Part D Plans.  We have a Medicare Part D Shop & Enroller you will find on our website, MedigapSeminars.org.  A link for the current year will be below the video.   When you are using our service to evaluate plans and want to know about the deductible, you will see it clearly indicates those tiers, in any, that are exempt from the deductible:

Stage Two of Medicare’s Prescription Drug Program – Initial Coverage

After you meet your deductible, for those prescriptions that are not exempt, your Medicare part D Plan will help pay your prescription costs.  The Initial Coverage is where you would pay a copay or coinsurance for part of the prescription costs, and the insurance company will pay the rest.

How long you stay in this Initial Coverage stage will depend on two things; the cost of your drugs and your Part D Plans benefit structure.

For 2021 you will stay in the Initial Coverage Stage until you have a total of $4,130 in drug costs.

This is important, that is $4,130 in total drug costs, not just your total out-of-pocket.  Total drug costs include your out-of-pocket PLUS what the Part D Plan has paid as well.

In the first half of this two-part Medicare Prescription Drug series I mentioned that you, the level of the premium for a Part D plan ahs nothing to do with the quality of benefits you receive.  A $90 a month Part D plan is not better than a $10 a month plan.  They are simply designed for people in different situations.  Now you can understand what that means.   In simply terms, a high premium plan is designed to get you to and past that $4,130 total drug cost with minimum out of pocket so you can get to stage four, Catastrophic Coverage as painlessly as possible.  For the high premium plan, low tier drugs are usually a bit more costly and high tier drugs come with a greater discount that counts toward your total costs.

That is stage two – your Initial Coverage which ends when your total costs reach a pre-set limit.  That limit for 2021 is $4,130.  When your total costs reach $4,130 you exit Stage Two and enter Stage Three.

Stage Four of Medicare’s Prescription Drug Program – The Donut Hole

For Stage Three, I need you to understand a new term.  You may want to write this down.   The term I need you to understand is your True Out-of-Pocket cost, often abbreviated as your TROOP.  TROOP is your total out-of-pocket costs on the prescriptions in your Medicare Part D plan formulary.

Your TROOP includes the money you spend on Part D prescriptions.   It also includes money spent on your prescriptions on your behalf.  For example, the pharmaceutical manufacturer contribution or discount, or an HSA plan or Medicare Saving Account (MSA) or Flexible Spending Account (FSA). It can also include the Extra Help from a Low-Income Subsidy.  Your TROOP does not include your Part D monthly premium.  It does not include drug you pick up over the counter or by using Good Rx.  It does not include prescriptions NOT on your Medicare Part D Plan Formulary.

During Stage Three, or the Coverage Gap, you pay 25% of your dug costs.  Your costs go up during this stage.  You pay 25% of the cost of the prescription.  The Pharmaceutical Industry will pay 70% of the prescription and Medicare will pay the remaining 5%.   You will be credited 95% of the drug cost toward your TROOP.   For example, let’s sat a drug has a retail price of $100.  You will pay $25.  The Pharmaceutical Company will pay $70 and Medicare will pay $5.  Of the month spent, $95 is credited toward your TROOP.

During Stage Three, the Coverage Gap or Donut Hole, you pay 25% of your prescription drug costs until your TROOP is equal to $6,550 for 2021.

Once your TROOP reached the Part D Donut Hole limit, you enter Stage Four, Catastrophic Coverage.

Stage Four of Medicare’s Prescription Drug Program – Catastrophic Coverage

Catastrophic Coverage is Medicare is simple.  In this stage Medicare will typically pay the greater of 95% of your prescription drug costs or $3.70 for a generic prescription or $9.20 for a brand name prescription.  If you have a $10,000 prescription, Medicare will $9,500 you will pay $500.

If you have a $100 brand name prescription, 5% is $5.  Since $9.20 is more than $5, you will pay $9.20.  Another way to look at this is you will pay $9.20 unless your brand-named prescription cost more than $184.  If your brand-named prescription costs more than $184 you pay 5%. For a generic prescription, you pay no less than $3.70.

If you have watched my Medicare Explained videos for Medicare Advantage Plans and Medicare supplement plans you may have noticed there is a term that I used in those videos that is conspicuously absent here.  That term is your MOOP.  Your Maximum Annual Out-of-Pocket.

There is no MOOP for Medicare Part D prescription drug plans.

Once you are in Catastrophic Coverage you will continue to pay 5% of your drug costs until December 31 when your plan ends.  On January 01 you start a new plan and a new deductible stage one all over again.