For most individuals eligible for Medicare, getting coverage for doctor visits and hospitalization is a main concern. But what about prescription drug coverage? With 66% of Americans using prescription drugs, it is important to have a Prescription Drug Plan (PDP) to help cover the prescription costs and make it more affordable once at the pharmacy.
How Medicare works
Medicare enrollees can expect to enroll in three different parts once they become eligible for coverage when they turn 65 (or meet the health requirements).
Part A
This covers inpatient hospital stays and offers some coverage for rehabilitation and skilled nursing facilities. Typically, there is a deductible you must meet before Medicare will start covering medical costs. In 2023 it is $1600.
Part B
This covers doctor visits and other outpatient care, plus ambulance services, some medical equipment, and preventative care. In 2023, there is a standard deductible of $226 you must meet before Medicare will start covering medical costs.
Part A and B together are considered Original Medicare.
Part D (Drug Coverage)
This helps cover the cost of both brand-name and generic prescriptions, as well as specialty drugs. These benefits are not included in Part A or B so you have to purchase a separate PDP, which is offered through private insurance carriers.
Why get Part D?
Even if you do not take prescription drugs at the time of enrolling in Medicare, you are required to enroll in a PDP, or you could face a late enrollment penalty.
This penalty is 1% added to the cost of your premium for every month you did not have prescription coverage. (Note: the base premium is $32.74 in 2023).
Exceptions to this rule are if you were still on an employer plan or have coverage through the VA.
How to calculate the penalty
Here is an example of how Medicare would calculate a penalty:
Let’s say you did not enroll in a drug plan when you first became Medicare eligible as of January 1, 2022, because you didn’t take any prescriptions but decided to enroll during Annual Enrollment Period in 2023 for a PDP because your doctor just diagnosed you with high blood pressure and high cholesterol and prescribed some medications to treat it.
Your plan would start in January 2024. Since you went a full 23 months without coverage (January 2022- December 2023), you would have a 23% penalty on your premium when you enroll.
Here is an example of how the penalty is calculated:
.23 (23% Penalty) x 32.74 = $7.53
New premium total: $32.74 + $7.53 = $40.27
This means that you will have $7.53 added to your premium each month once you enroll. While this does not seem like a lot, it can add up the longer you wait to enroll.
Out-of-pocket costs
When enrolling in Part D, it is important to know that drugs are not free or covered at 100%. In fact, you have to meet drug deductible and pay copays and coinsurance for the entire year, but as you pay more, your costs go down.
Overall, you have to pay the True out of Pocket (TrOOP) of $7400 (2023) in drug costs before Medicare will cover costs at a highly discounted rate.
However, that cost is not required upfront but is broken up into stages
Yearly Deductible
In 2023 this is $505 and you must pay this amount before Medicare will cover any part of the drug costs.
Initial coverage:
Next, you will have to pay all costs up to $4660. This includes any copays or percentages you are responsible for. Usually, it is listed on your plan summary of benefits. For example, generic drugs could be $3 and brand names are $45, with the specialty drugs being 33% of the cost. Once this is reached, your cost responsibility goes down.
Coverage Gap (Donut Hole)
Once you have spent $4660 on prescription drugs, you enter into the donut hole. This is a time in your plan when your cost responsibilities go down. For example, for a brand drug, Medicare will only pay 25% of the cost. For a generic drug, Medicare pays 75% of the cost and you pay 25% of the cost. Only the costs you pay go toward this coverage gap, and it does not include any pharmacy dispensing fees that you could have. You pay this until you reach the TrOOP of $7400.
Catastrophic Phase
Once you reach the TrOOP of $7400 for the year, you will still have to pay a small amount to cover prescription costs. This includes 5% co-insurance, $4.15 for generic drugs, and $10.35 for all other drugs (in 2023). Overall, drugs are not covered at 100% unless you get help with prescription drug costs.
How to get Part D
To enroll in Medicare Part D, there are two options.
First, you can enroll in Medicare Part C, or what is also called a Medicare Advantage plan.
These plans are $0 per month additional and include drug coverage built in. You must have Medicare Part A and B to enroll in this plan, and they are offered through private insurance carriers who provide coverage through an HMO or PPO network.
Second, you can enroll in a stand-alone PDP. These plans are also offered through private carriers and require you to keep Medicare part a and/ or Part B to enroll.
Working with a broker can help you determine what plan works best for you and they can guide you to make sure you do not miss any deadlines and get penalized.
Contact me today for a free consultation.