What is Medicare Part D?
Medicare Part D is that part of Medicare that provides insurance coverage for most Medicare prescription drugs. In general, Medicare prescription drug coverage can be divided into three categories. With two of these categories, prescription drug coverage is paid by either Part A or B of Original Medicare. It is important to understand when your covered prescription drugs are paid under Part D or when Original Medicare will help pay the cost. The categories of drug coverage are Inpatient Prescription drug coverage, Medicare Part B medications and your Part D prescription drug plan.
Inpatient Prescription Drugs
These are prescriptions drugs that are provided to you when you are an inpatient in a hospital or medical facility. Inpatient prescription medications are covered under your Original Medicare Part A.
If you have ever been an inpatient in a hospital you may have noticed that you are not allowed to bring in your own medications like blood pressure pills or statins etc. That is because the hospital must control your medications for your safety and their liability. All medications of any sort provided to you as an inpatient in a medical facility will be covered by your Medicare Part A and your supplement. If you have a Medicare Advantage plan, it will be covered by the terms of that annual contract.
Medicare Part B Medications
As a general rule of thumb, if your medication is administered by a medical professional at a medical facility it should be covered by your Medicare Part B insurance and your supplement, if you have one. This may include infusions or injections. Medicare Part B typically covers
Medications for your durable medical equipment like a nebulizer or infusion pump should be covered under Part B.
Oral cancer drugs can be covered. This includes oral anti-nausea drugs used as part of a chemotherapy regimen if used as a replacement for intravenous anti-nausea medications and taken with 48-hours of chemotherapy.
Some drugs self-administered in a hospital outpatient setting.
Under certain conditions, Medicare Part B will even cover injectable osteoporosis drugs.
Medicare Part D Prescription Drug Plans
In general, any prescription you pick up at a pharmacy and self-administer at home or away from medical professionals would be covered under your Part D Medicare prescription drug plans. These are the prescriptions for which Medicare Part D was designed.
Also included in Part D Medicare prescription drug coverage are biologics, insulin, medical supplies associated with insulin and some vaccines.
When Can I Apply For Part D Drug Coverage?
A Medicare Beneficiary can apply for Medicare Part D as long as they are eligible for Medicare Part A. Medicare beneficiaries do not need to have Part B to apply for prescription drug coverage. However, they will need a Medicare beneficiary number.
You can apply for Part D coverage during your Initial Enrollment Period. That is a seven month window around the month you turn 65. Use this Medicare Initial Enrollment Calculator to find when you can enroll in Medicare. If using your initial enrollment period, the earliest your Part D coverage can start is the first day of the month you turn 65. The exception to this is when a birthday falls on the first day of the month. In that case, your entire initial enrollment period is moved forward by one month.
If you miss enrolling in Part D during your initial enrollment period, you can apply either during the Annual Enrollment Period (AEP), the General Enrollment Period, or a Special Enrollment Period.
For more details, please see How to Sign Up for Medicare & When.
Annual Enrollment Period
Part D plans are annual contracts. They operate on a calendar year basis. That means every Part D plan expires on December 31st of each year. It also means that every year the Part D plan can have different benefits and different costs.
Because the benefits can change each year, Medicare provides a period of time where you can shop and enroll in the next year’s prescription drug plan. This period of time is called the Annual Enrollment Period and it starts on October 15 and ends at midnight December 07.
During AEP you can view and compare the benefits of the next calendar year plans, then simply choose the prescription drug coverage you want for the year ahead. There is no medical underwriting. As long as you are eligible for a Medicare prescription drug plan, the insurance company cannot deny your application. Your new prescription drug coverage will start as of the following January 01.
Special Enrollment Periods
Medicare has many special enrollment periods that can be used to apply for Medicare prescription drug plans. Special enrollment periods occur whenever you lose your Part D coverage through no fault of your own. For example if you move to a new state, you will have a brief Special Enrollment to get a new Part D plan . Prescription drug coverage associated with your old address will be automatically canceled when you apply for a new plan.
The most common special enrollment is when a person delays their Part B and D enrollment because they continue working and have creditable prescription drug coverage through their employer group plan. In that case, you have 63-days from the last day of creditable prescription drug coverage to enroll in a Part D plan.
General Enrollment Period
The General Enrollment Period is an annual enrollment window from January 01 through March 31. People who missed their initial enrollment for Medicare Part B can use the General enrollment Period to apply for Part B. This same time period (January 01 through March 31) is also the Medicare Advantage Open Enrollment Period. During this time frame you can:
Make one change in your Medicare Advantage Plan. For example, if you mistakenly purchased a Medicare Advantage Plan without drug coverage, you can switch to an Advantage Plan with drug coverage during this window.
Move from a Medicare Advantage (MA or MAPD) back to Original Medicare. when you do, you can then apply for stand-alone Medicare prescription drug coverage.
If you use the General enrollment Period to enroll in Part B you can also add a MAPD plan or a stand-alone prescription coverage.
Medicare Part D Prescription Drug Coverage
Medicare Part D plans are regulated, but not standardized. Each plan is different in the prescription medication covered and the cost to the consumer. However, each Medicare drug plan must meet a certain level of minimum benefit. The Medicare drug coverage must include a minimum of two prescription drugs per category plus virtually all drugs in six protected categories. The intent is to have broad drug coverage available in each plan so that the consumer will never be in a position of needing a prescriptions and not having that medication or a similar medication available. The six protected categories include:
Each Medicare prescription drug plan has its own formulary, or drug list. The formulary is divided into “tiers” based on their cost to the consumer. Most plans have five tiers broken down as follows:
Tier 1 includes the most common generic drugs. These may have no copay.
Tier 2 may include some generic drugs and possibly common brand name drugs. Tier 2 drugs may have a small copay, or often no copay.
Tier 3 has a higher copay and typically includes brand name prescription drugs that are on a preferred list based on the insurance company contract with the manufacturer.
Tiers 4 and 5 are typically specialty tiers. The consumer responsibility will be a coinsurance (a percentage of the cost). These are the highest cost and specific drugs that are the least common prescriptions.
A plan’s drug list can change every calendar year. Each prescription drug plan has slightly different benefits, but often certain drug tiers will have no copay requirement, meaning the consumer will have no out-of-pocket cost. Some plan’s drug list are weighted toward lower tier drugs while another drug plan list may favor higher tier drugs.
Most Part D Plans offer cost savings via a series of Network Pharmacies. A preferred network pharmacy will offer prescriptions at a lower price than a standard pharmacy that is not in network. A plan’s preferred network can include small local pharmacies as well as large national chain pharmacies. Preferred pharmacies have a contract with the insurer and offer lower prices negotiated by the insurance company. In addition, there is typically a choice to receive regular prescriptions through a mail order pharmacy. Using an in-network pharmacy is critical in keeping prescription drug costs down. Medicare Part D beneficiaries should consider the pharmacy network when selecting their Medicare prescription drug plans.
How Does Medicare Part D Work?
Standard Medicare prescription drug plans are structured such that there are four stages. This is where some of the new rules will improve the plans. The first stage consists of the plan deductible. The deductible is the amount you must pay toward covered drugs before your insurance pays a benefit. The maximum deductible is set each year by Medicare. Insurance companies can set a lower deductible, but no more than the maximum set by Medicare.
For 2023 the maximum deductible is $505. If you are watching this video after 2023, I have a graphic linked below that details the current year numbers that are set by Medicare annually..
During the second stage, the consumer and the insurance company share the cost of the drug. The consumer pays 25%, the insurance company pays 75%. This continues until you reach a coverage limit of $4,660. Keep in mind the 25% / 75% may be what is referred to as an Actuarial Equivalent. In other words, “on average” and not exact for every prescription. Once your insurance company has forked out $4,660 it is done. It’s no longer participating in your prescription. That is when your plan moves to stage three.
In Stage Three the pharmaceutical manufacturer takes over where your insurance company left off. You still pay 25% of the cost of the covered drugs. 70% is paid by the pharmaceutical manufacturer and 5% by Medicare. This stage was often referred to as a donut hole or coverage gap. It’s not a gap anymore. Anyway, when your expenses plus that 70% paid by the manufacturers reaches $7,400 the pharmaceutical manufacturer steps aside, they are done and your Part D advances toward the final phase, phase four.
It is estimated that be the end of stage three a typical consumer will have about approximately $3,100 out-of-pocket. The rest is paid by the insurance plan and manufacturer.
This is where the new law will make a big impact. Starting the 2025 there will be a cap on consumer out-of-pocket prescription drug cost of just $2,000.
This fourth stage is called Catastrophic Coverage. In this stage Medicare pays 95% of the cost of brand name drugs. For generics you may have a small copay between $4.15 and $10.35. But Medicare pays the bulk of your prescription costs. For 2023 that 5% has no maximum out-of-pocket.
Here too there is a big change. This one starts in 2024. As of the 2024 plan year, there is no more 5% paid by the consumer in stage four catastrophic coverage. Once a consumer reaches stage four, drug costs are covered 100% by Medicare.
Now we are ready to understand the difference in Part D premiums I mentioned earlier. Going back to the difference between a low premium Part D and a high premium, The Part D plans with a high premium are designed to get people into catastrophic coverage as quickly as possible so that Medicare pays 95% of the drug cost 2023 and then 100% starting in 2024.
Inflation Reduction Act of 2022
Let’s look at a few other changes that you should be aware of that are passed as part of the Inflation act:
- More people will qualify for Low Income Subsidies. In 2022 a person who makes 135% of poverty level or better cannot get Low Income Subsidies. Starting in 2024 LIS subsidies are available to people making 150% of poverty level or less. An estimated 400,000 more people will qualify for help.
- Insulin costs are capped at $35 / month as of 2023. No matter how you receive your insulin.
- We mentioned the $2,000 out-of-pocket cap in 2025
- We already mentioned Medicare will cover 100% of the drug costs during stage four catastrophic coverage.
- In 2026 Medicare will be able to negotiate prices on some drugs. The number of drugs eligible for negotiation will increase each year into 2029
- Cost sharing for adult vaccines will be eliminating, making vaccines free starting in 2023. It is estimated this will impact more than 4.1 million people.
Please keep in mind, as these benefits were created the benefit program passed by the previous administration was delayed from a start in 2023 to a start in 2032. I like these benefit changes, but in DC nothing is set in stone. If these changes have a huge impact on Medicare costs, another administration may abridge them to keep Medicare solvent. I will keep a close watch on how these new rules impact Medicare and how the “Law of unintended Consequences” may force other changes. If you are subscribed to my facebook page and / or my YouTube channel you will get these updates as quickly as I can report them
I have put together a graphic to better understand the Medicare drug plan stages. You can find that graphic here: Stages of Medicare Part D drug plans.
Medicare Advantage Plan vs Stand Alone Part D
Most Medicare Advantage plans come with bundled Medicare prescription drug coverage. This drug coverage is simply a bundled Medicare Part D plan. These Advantage plans are referred to as Medicare Advantage Prescription Drug Plans (MAPD). Not all Medicare Advantage plans offer drug coverage. Those that do not are referred to as simply Medicare Advantage plans (MA). Most MA plans are designed for veterans who use the VA benefits for their creditable prescription drug coverage.
With a MAPD plan you may still need to pay a separate monthly premium and deductible (if any) for prescription drugs. It’s also critical to understand that any maximum out-of-pocket declared by the advantage plan does not count toward prescription drugs.
One of the weaknesses of this arrangement is that it can be difficult to find a MAPD plan that has your doctors in-network and has a fair price for your prescription medication. With a Medicare Advantage plan, if you wish to shop for the best price for your specific drugs covered, you may have to sacrifice your primary health benefits offered by your Medicare health plan (MAPD). Remember, the benefits and network of your Medicare prescription drug plan and your MAPD can change each calendar year.
Warning – Special Rule
There is a special rule about Medicare Advantage HMOs and PPOs and Medicare drug plans. If you have a MA or MAPD that is an HMO or PPO you cannot also have a separate or stand-alone Medicare drug plan. If you purchase a stand-alone Medicare drug plan when you have a Medicare Advantage HMO or PPO, Medicare will cancel your HMO or PPO.
It doesn’t matter if your HMO or PPO has bundled drug coverage or not. You cannot have both Part D and a Medicare HMO or PPO.
Conversely, if you have a stand-alone Medicare drug plan and then apply for a Medicare HMO or PPO, your Medicare drug plan will be canceled.
Lastly, please be cautious in enrolling in either Part D or an Advantage Plan if you have Tricare for Life or Champ VA. Please see my video How Medicare Works with Tricare for Life
Stand-Alone Part D
If you decide to keep Original Medicare as your primary coverage, you can and should purchase a stand-alone Medicare drug coverage. They are designed to work together.
Of course, when you have Original Medicare you can also add a Medicare supplement insurance plan. Medicare supplement insurance plans plans can improve your prescription drug coverage. With a Medicare supplement you can be an inpatient in a hospital for up to a year without paying a dime. This includes inpatient drug coverage. Also, the if the supplement pays your Part B copay, your Medicare Part B drugs can be entirely paid for between Original Medicare and your supplement.
Of course, the supplement comes with a separate monthly premium, but it may be well worth the extra cost in what it can save you with all the benefits it covers.
How To Shop For Part D
I have set up a website to help clients learn more about Part D and shop for a plan. It includes a link to shop plan tools that will show which of the Part D plans I recommend will charge the least for your prescriptions. The website is PartDShopper.com Keep in mind, this site only shows the plans and companies I recommend. If you wish to see all plans available to you, you can use a similar (bust less consumer friendly) tool on Medicare.gov.