Medicare Part D

The Prescription Drug Plan, or Part D, subsidizes the cost of prescription drugs and prescription drug insurance premiums for Medicare beneficiaries. The standard Medicare drug coverage includes three levels of expense that beneficiaries will move through during the year as they purchase their prescription drugs. Out-of-pocket costs for covered medications in 2011 included:

• An annual $310 deductible
• 25 percent of prescription costs between $310 and $2,840 (a total of $632)
• 100 percent of prescription costs between $2,840 and $6,448 (a total of $3,608)

Once prescription costs reach $6,448 (a total of $4,550 true out-of-pocket costs—not including the premium), consumers will pay $2.50 for generics and preferred drugs and $6.30 for all other drugs, or a 5 percent co-pay—whichever is greater. There are two important documents that are part of any Part D drug plan:

1. Pharmacy Directory, analogous to the Provider Directory in a Part C plan, which lists network pharmacies that have agreed to fill covered prescriptions for plan members. This Directory is usually updated once a year;
2. Formulary or List of Covered Drugs, which describes the prescription drugs covered by the plan. The list is developed by the plan, usually with the help of a team of doctors and pharmacists—and the list must meet requirements set by Medicare. It also tells you if there are any rules that restrict coverage for certain drugs. This list is also usually updated once a year.

An important note: Only payment for prescription drugs that are part of a plan’s formulary will count toward the deductible and out-of-pocket limit. A Part D plan may also cover some drugs that are not listed in the Formulary. If you use a prescription drug that’s not listed, you can contact the plan’s Member Services office to inquire whether it is, and if not, inquire if it can be added. (You may need some supporting materials from your doctor to get a drug added.) An “exceptions” process will be in place for a beneficiary to request a covered Part D drug at a lower cost-sharing level, or to request a drug that is not on the plan’s formulary. The beneficiary’s physician must determine that the lower-cost drug on the formulary is not as effective as the requested drug, or that they would have adverse effects on the enrollee.

Drugs that are excluded from coverage under Part D plans include: Barbiturates, Benzodiazepines (anti-anxiety medications), weight loss and weight gain medications, drugs covered under Part A or Part B benefits, fertility drugs, cosmetic drugs, cough or cold remedies, or vitamins (except prenatal). When you use Part D prescription drug benefits, the plan will send you a report that explains the payments that it has made for prescription drugs. This report is usually called an “Explanation of Benefits” (EOB). And it will usually include a summary portion that describes the drugs you’ve used during previous periods—most often the previous month and year.

Most people pay a standard monthly Part D premium. However, you may have to pay an extra amount if your annual income is higher than certain limits ($85,000 or above for an individual or married individuals filing separately or $170,000 or above for married couples). If you have to pay the extra amount, the Social Security Administration—not your plan—will send you a letter telling you so and what that extra amount will be. Another reason that you might have to pay more for the Part D drug coverage: If you did not join a Medicare drug plan when you first became eligible or if you’ve had a “continuous period of 63 days or more” when you didn’t have “creditable” prescription drug coverage, you will have to pay a late enrollment penalty.

(“Creditable” coverage means a drug plan that is expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage.)

The amount of the late enrollment penalty depends on how long you waited before you enrolled in drug coverage or how many months you were without drug coverage after you became eligible. In some cases, you can pay the penalty in a lump sum—but, usually, you’ll be asked to pay it as a surcharge to your monthly Part D premium.

Some Part C/Medicare Advantage plans include prescription drug coverage that follows the same rules as Medicare Part D coverage. This Medicare Advantage Prescription Drug (MA-PD) coverage provides an integrated benefit covering their hospital, physician, and drug costs. To qualify for a MA-PD plan you must be entitled to Medicare Part A and enrolled in Part B. Generally, however, it’s better to use a Part C plan that doesn’t offer drug coverage and get a stand-alone Part D policy. This way if you decide to change the Part C plan you use—or if you choose to go back to traditional Medicare—your prescription drug coverage won’t be affected.