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Medicare, the federal health insurance program designed primarily for adults ages 65 and older, is an alphabet soup of parts. Medicare Parts A and B, also known as “original Medicare,” are standard coverage, but what about Part D, the prescription drug coverage portion?
If you’re trying to determine whether it makes sense for you to add Part D to your Medicare coverage plan, read on for more information about what it is and what it can do for you.
[READ: What Medicare Does Not Cover.]
What Is Medicare Part D?
Medicare Part D is a voluntary benefit offered by private insurance companies to cover some or all of the cost of many prescription drugs.
“Original Medicare covers some drugs that might be administered in a hospital or doctor’s office setting, but Part D covers the kinds of drugs you might pick up from the pharmacy. If you’re signed up for a Medicare supplement plan, that also works alongside your Part D prescription drug plan,” explains Whitney Stidom, vice president of Medicare operations with eHealth Inc., a health insurance broker and online resource provider headquartered in Santa Clara, California.
[READ When Do You Need a Medicare Supplemental Insurance Plan?]
What Does Medicare Part D Cover?
Medicare Part D covers a set list of prescription drugs. This list, called a formulary, can differ from year to year and depends on the specifics of your Medicare plan selections.
Both brand-name and generic medications are covered, and the formulary usually covers at least two drugs among the most commonly prescribed categories and classes. That helps ensure that people with various medical conditions can get the medications they need at a reasonable cost.
In some cases, the formulary might not cover a certain drug that a beneficiary needs. Usually, however, a similar or generic version of that medication is available. If there is no analogous drug in your formulary, you or your doctor can request an exception by submitting documentation of your need along with additional information to Medicare.
The copay you need to contribute can fluctuate as prices and benefits change, so be sure to check the list of what’s covered and what your copayment responsibilities will be during each annual enrollment period.
[READ: How Do You Apply for Medicare?]
Medicare Part D Tiers
Many Medicare Part D plans classify drugs according to a tiered system. This approach can help lower costs, as each tier costs a different amount. Usually, the lower the tier number, the less the medication will cost you out of pocket.
These tiers vary from plan to plan, but a typical plan usually includes:
— Tier 1: Most generic prescription drugs that have the lowest copayment price.
— Tier 2: Preferred, brand-name prescription drugs that have a medium-level copayment.
— Tier 3: Non-preferred, brand-name prescriptions that have a higher copayment.
— Specialty tier: Very high-cost prescription drugs that have the highest copayment prices.
If your prescriber believes you need a drug in a higher tier when there is a similar or generic version of that medication in a lower tier, you or they can ask for an exception to get a lower coinsurance or copayment price for that higher-tier drug.
Who Needs Medicare Part D?
According to data from the Centers for Medicare and Medicaid Services, about 65 million people were enrolled in Medicare in 2023. Of those, more than 50 million were enrolled in Medicare Part D plans.
Not every Medicare enrollee takes medications daily, but most do. A KFF poll from 2019, for instance, found that 89% of adults age 65 and older reported they were currently taking prescription medicine. Taking more than one medication is also quite common among seniors, with KFF finding that 54% of adults age 65 and older took four or more prescription drugs.
Individuals who have a chronic health condition that requires the use of a prescription medication, such as those with diabetes who take insulin, will likely benefit from having Medicare Part D coverage to help defray the cost.
Generally, Stidom urges all Medicare enrollees to secure Part D coverage.
“Everyone on Medicare needs prescription drug coverage,” she says. “It’s no secret that prescription drugs can be costly, especially without insurance. As a Medicare beneficiary, enrolling in drug coverage is one of the best things you can do to shield yourself from medical expenses.”
How Much Does Medicare Part D Cost?
Medicare Part D plans typically include several costs, such as:
— Monthly premiums.
— An annual deductible that may be waived on some plans depending on the specifics.
— Copayments.
— Co-insurance for certain drugs.
— A coverage gap period during which beneficiaries pay 25% of drug costs.
— Catastrophic coverage after meeting a certain threshold.
The premium you’ll have to pay for this coverage depends on the specifics of the plan you select. Stidom notes that “according to an eHealth report, the average premium paid by beneficiaries selecting a Part D plan for 2023 was $32 per month. That said, premiums can vary widely.”
Are there additional costs for high-income earners?
Medicare’s income-related monthly adjustment amount (IRMAA) is an income-based surcharge that you may have to pay in addition to your premium for Medicare Part B and Part D coverage. This extra fee is based on your modified adjusted gross income, or MAGI. That figure is calculated from your tax filings in the two years prior to your Medicare enrollment date.
If your calculated MAGI meets or exceeds the income thresholds set by CMS, you’ll have to pay an additional fee for your Part B and Part D coverage. In 2024, that threshold is $103,000 for individual filers and $206,000 for joint tax return filers. These fees are used to fund the Medicare Trust Fund.
For Part D plans, the additional IRMAA monthly fee can range quite a bit. For individuals in the lowest bracket — those with a MAGI of greater than $103,000 and less than or equal to $129,000 — you’ll need to pay an additional $12.90 per month for Part D coverage. For individuals in the highest bracket — those whose MAGI is equal to or greater than $500,000 — the monthly fee is $81.00.
If you experience a major life-changing event, such as death of a spouse, divorce or loss of employment that has reduced your income during your coverage year, you can request a reduction in your IRMAA. Whether you must pay the IRMAA can also vary from year to year depending on income fluctuations and adjustments to the MAGI threshold levels.
What about the Part D late enrollment penalty?
It’s important to stay on top of your Medicare elections, as you could end up having to pay a late enrollment penalty for Medicare Part D coverage in some circumstances.
If you went without creditable prescription drug coverage for a period of 63 days or longer at any time after you first became eligible for Medicare, you’ll likely be hit with the late-enrollment penalty, Stidom explains.
How much that costs requires a complex calculation, Stidom adds. However, you usually do not have to pay the penalty if you had drug coverage through an employer, a government program or through Medicare Advantage before enrolling in a Part D plan.
How to avoid the Part D late enrollment penalty
CMS recommends three ways to avoid the Part D late enrollment penalty:
— Enroll in Medicare Part D coverage when you first become eligible. Even if you don’t take any medications during your initial enrollment period — the seven-month period when you first become eligible for Medicare — adding the benefit means you won’t get hit with a late enrollment penalty later if you begin taking prescription medications. These plans may not elevate your monthly premiums significantly, and it’s a good way to help offset future anticipated health care costs with a little upfront investment.
— Enroll in Medicare Part D immediately after you lose other creditable coverage. If you’re currently receiving pharmacy benefits from a former employer, union, the Department of Veterans Affairs, TRICARE, the Indian Health Service or an individual health insurance coverage plan, you don’t need to enroll in Part D during your initial eligibility period. That coverage ending, however, triggers a special enrollment period when you can add that coverage.
— Keep good records of your creditable drug coverage. To avoid being hit with a late enrollment penalty later, you’ll need to substantiate that you had creditable drug coverage from another source. This means you need to keep good records of that coverage so you’ll have the documentation necessary to show Medicare.
How to Compare Part D Plans
Because Medicare requires Part D plans to cover a wide range of drugs, there can be some variation in which drugs are covered for specific conditions and how much they’ll cost, Stidom notes.
“That’s why, when enrolling, it’s important to compare Part D plans with your personal drug needs in mind,” she explains.
When comparing Part D Plans:
— Start by making a list of all your medications.
— Check the formularies of any plans you’re considering to ensure your medications are listed.
— Check the tier levels and where your medications fall on those schedules.
— Add up the costs of those medications, and compare it to each plan’s deductible.
For Part D plans in 2024, no plan may have a deductible of more than $545, but some plans may waive the deductible or offer lower deductible rates.
If your anticipated medication costs won’t exceed the deductible advertised, check for other plans that have no or lower deductibles that will provide coverage sooner.
Stidom also recommends talking with licensed agents or licensed online brokers to help you understand which plan meets your needs and budget.
You can also refine your search with U.S. News’ Best Medicare Part D rankings.
Part D Enrollment
For Part D, you can enroll through a licensed agent, licensed online marketplace or an insurance company offering Part D or Medicare Advantage plans, Stidom says.
Your Part D options include a stand-alone prescription drug plan, called a PDP, that supplements traditional Medicare, or you can elect to enroll in a Medicare Advantage plan. Medicare Advantage plans are usually structured as HMOs (health maintenance organizations) or PPOs (preferred provider organizations) that provide all Medicare-covered benefits and often include prescription drug benefits.
If your current Part D plan doesn’t cover a drug you need, “make use of Medicare’s annual enrollment period in the fall to compare new Part D plans and see if you can one better suited to your needs,” Stidom advises.
Again, a licensed broker can help you wade through these complexities and learn about other programs that could help defray some costs, such as the Part D Low-Income Subsidy program, which is also known as the Extra Help program. This program offers people with limited income and resources ways to get help with premiums, deductibles and copayments for prescription drugs.
Bottom Line
Medicare Part D is an important component of health insurance that helps defray the cost of prescription drugs. It’s an optional program, but you should consider adding it to your Medicare plan so you aren’t hit with excessive medication costs if you get sick or develop a chronic condition.
There is a huge range of plans and options available to Medicare-eligible individuals. Do some research, and talk to a trusted adviser to figure out what’s best for you and how much it’ll cost.
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Medicare Part D: Coverage, Costs and Enrollment originally appeared on usnews.com
