Medicare Part D

Medicare Part D is a government program for prescription drugs administered by private insurance companies. The Medicare Part D program started in 2006. Before that time, Medicare recipients paid thousands of dollars a year for drugs.

How Does Medicare Part D Work?

You pay a monthly premium for your Part D coverage and use the insurance company’s network of pharmacies. You don’t pay full price, but you will have a copay and the insurance company will pay the rest. You’ll receive a Part D insurance card which is different from your Medigap plan.

Like all private insurance plans, Part D follows federal guidelines. Each insurance provider submits its plan to Medicare annually for approval.

Four Stages of Coverage

Coverage by Medicare Part D is administered in four stages, each with its own parameters.

  1. Annual Deductible In 2020, the annual deductible for Medicare Part D is $435. Depending on your plan, you may have to pay the full deductible, part of the deductible, or the deductible may be waived. You pay the discounted prescription price until you meet your deductible.
  2. Initial Coverage After you meet your deductible, the Initial Coverage stage of Part D begins. You’ll pay a copay for prescriptions. The copay is determined by the formulary group of your medication. For example, a Tier 1 medication might have a copay of $8, while a Tier 3 medication may have a copay of $20. Your insurance company will track the amount spent by both you and the company up to a total of $4,020 in 2020.
  3. The Coverage Gap or “Donut Hole” The $34,020 in prescription drug costs is the initial coverage limit for the year. When you and the insurance company have paid this amount, you begin the coverage gap stage. During the gap you will pay 25% of name brand medication, and 25% of generics. This is a big improvement over the gap stage in 2006 when you had to pay 100% of the cost. The gap stage continues until your total out-of-pocket costs reach $6,350 in 2020.
  4. Catastrophic Coverage After you reach $6,350 in out-of-pocket costs, your plan will pay 95% of your formulary medication for the rest of the year. This stage helps limit the amount you spend if your medication is expensive.

Tracking Part D Spending

Medicare tracks your spending under Part D. This is referred to as your “True Out of Pocket Costs” (TrOOP) each year. This protects you from being charged twice for certain medical costs.

For example, if you satisfy your deductible, but later switch to a different Medicare Part D plan because you move out of state, you won’t have to pay another deductible. Tracking works the same way for the gap and catastrophic coverage.

Part D plans change from year-to-year. You may see changes to your plan’s benefits, formulary, pharmacy network, premiums, copays, or coinsurance on January 1st of each year. You will have an annual election period each year to change your plan if you choose.

Drug Utilization Rules for Part D Coverage

Medicare allows Part D providers to put rules in place for safety and to keep costs down. The three most common rules are listed below.

  • Quantity Limits – This restricts how much medication can be purchased at one time. If your doctor prescribes more than the limit, he/she has to file an exception form explaining why more medication is needed.
  • Prior Authorization – The insurance company may require prior authorization before your prescription is filled. This typically applies to very expensive or unusually potent medication. The doctor has to explain why the medication is necessary.
  • Step Therapy – The insurance company requires you to try a less expensive alternative medication before they pay for the more expensive option. If the less expensive option doesn’t work, you can file a drug exception to request the original medication prescribed. He/she will have to explain what drugs were tried and why they weren’t effective.

Check your plan’s formulary to see if restrictions apply to your medication. There are some medications not covered by Part D, such as non-formulary medications or compound medication. You have to file an exception for approval, but don’t assume all exceptions will be approved. You may have to pay for the prescription out-of-pocket.

It’s important to understand changing from one drug plan to another won’t eliminate restrictions. Restrictions are a normal part of all Part D drug plans, especially with pain medication, narcotics, and opiates.

Part D helps you reduce the hundreds or thousands of dollars you might pay in medication costs, now and in the future. With plans available for as little as $20 per month, it makes sense to take advantage of this valuable coverage.

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