Medicare can be a confusing topic with different terminology, some familiar and others unfamiliar. There are discussions of Parts A, B, C, and D, copayments and deductibles, annual election periods, annual notice of charges, and many more. We’ll dive into an overview of Medicare Part D to help explain what it is and how it works.
Medicare Overview
First, a quick overview of “Medicare” and the various “Parts.” Medicare is the federal health insurance program that covers seniors age 65 or older, people with End Stage Renal Disease (ESRD), and some younger people with disabilities. “Original Medicare” includes Part A (Hospital Insurance) and Part B (Medical Insurance). These are provided through the federal government unless you opt into a private plan. You can have one or both of these plans and depending on your income, there may or may not be a monthly premium.
Next, there are the supplemental parts of Medicare, which you purchase from a private insurance company. Part C, also called Medicare Advantage, helps cover gaps that Parts A and B don’t cover, leaving you with lower out-of-pocket costs. If you choose one of these plans, the company takes over your Parts A and B coverage from the government, so all coverage will be provided by the insurance company.
Part D Coverage
Part D refers to prescription drugs. (Easy way to remember: D is for drugs) Original Medicare does not include prescription drug coverage, which can be a substantial expense for seniors living on a fixed income. Many seniors have multiple prescriptions that make Part D coverage a financial necessity. Choosing a Part D plan can also be confusing because there are many different plans with different premiums, copays, and formularies (the list of approved drugs).
While each plan may vary in specific drugs covered and in their cost, they all must provide at least a basic level of coverage defined by Medicare. This drug coverage includes both brand-name and generic drugs, but the exact formulary can vary from plan to plan. Each plan may also vary on how they place drugs into different “tiers” on their formulary, which determines the copay.
When and How to Enroll
While Medicare drug coverage is optional, it is highly recommended to select this coverage even for seniors who don’t take prescriptions at the time of enrollment. If you don’t select this coverage when you’re first eligible, you’ll likely have to pay a late enrollment fee when you join later. The exception is if you had another prescription drug coverage, such as from an employer, or get Extra Help, a program for low-income seniors. If you’re subject to the late enrollment penalty, you’ll pay this penalty for as long as you have the drug coverage. Over time, these penalties can negate any savings you received by opting out of the plan at the beginning.
You can get Medicare drug coverage in two ways: drug plans and Advantage plans.
Medicare Drug Plans
A Medicare drug plan adds prescription coverage to Original, some plans, some Cost Plans, and Savings Accounts. To join a separate Medicare drug plan, you must have Part A and/or Part B coverage.
Medicare Advantage (MA) Plans
With an MA plan, you can obtain all of your Part A, Part B, and Part D coverage through a private insurance company. It’s important to note that you have to have both Part A and Part B to purchase an MA plan, and not every MA plan offers drug coverage.
Before you decide, consider how this drug coverage will work with any other coverage you may have. Examples include coverage from your employer, VA coverage (Department of Veterans Affairs), Indian Health Services, or a Medigap Medicare Supplement Insurance Policy. If you already have or are eligible for drug coverage, talk to the plan provider or your benefits administrator before making any changes.
The most important consideration is to ensure that you have some coverage, whether it’s Medicare or another source, to avoid late enrollment penalties in the future.
Next, you should look at your specific prescriptions. One plan might have a higher monthly premium but charge less for certain drugs. Conversely, another plan might look less expensive with a lower premium, but at the end of the year, higher out-of-pocket expenses more than offset these savings. If you have multiple prescriptions, you should compare each plan’s formulary to calculate what your annual costs will be, combining both the premiums and copays.
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Additional Assistance
To obtain pricing and compare costs for specific Medicare drug plans, visit Medicare.gov. If you need additional assistance comparing the different plan costs, you can contact your state’s SHIP (State Health Insurance Assistance Program).
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