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Medicare Part D prescription drug coverage helps beneficiaries with the costs of their prescription medications. If you decide to enroll in Medicare Part D, some of your costs may include out-of-pocket expenses such as copayments, coinsurance, monthly premiums, and annual deductibles.
As a Medicare beneficiary, you typically have two options when it comes to prescription drug coverage. If you have Original Medicare (Part A and Part B), you can get prescription drug benefits through a stand-alone Medicare Prescription Drug Plan (PDP) that works alongside your Part A and Part B coverage. If you have Medicare Part C, you can get this coverage through a Medicare Advantage Prescription Drug plan that covers your Part A, Part B, and Part D benefits under a single plan. Both types of Medicare plans are available through private insurance companies that contract with Medicare.
Keep in mind that costs may vary by plan, depending on the plan’s formulary, or list of covered drugs, and which private insurance company offers the coverage. Medicare Prescription Drug Plans and Medicare AdvantagePrescription Drug plans differ when it comes to the specific medications they cover and the costs you pay – even when prescription drugs are exactly the same. Medicare plans that include prescription drug coverage typically place covered medications into cost tiers, with different cost sharing for the drugs on each tier. Prescription drugs that fall on higher tiers have higher copayments and coinsurance costs than medications on lower tiers. Keep in mind that formularies may be subject to change; your Medicare plan will notify you if necessary.
Private insurance companies set their own costs, so beneficiaries should compare plans in their area to find the right plan for their prescription drug needs. Here’s an overview of some of the costs you may have if you enroll in a Medicare Prescription Drug Plan or Medicare Advantage Prescription Drug plan.
Most Medicare Part D Prescription Drug Plans (PDPs) and Medicare Advantage Prescription Drug plans include a monthly premium, which varies by plan and insurance company. If you get your prescription drug coverage through a Medicare Advantage Prescription Drug plan, your monthly premium may include the cost for both your Medicare Part C and Part D coverage. This monthly premium may be in addition to the Medicare Part B premium, which you’ll need to keep paying.
To avoid having to pay a late-enrollment penalty, be sure to sign up for Medicare Part D when you are first eligible. Most beneficiaries are first eligible for Medicare Part D once they have Medicare Part A and/or Part B and live in the service area of a Medicare plan that includes prescription drug coverage. If you wait to enroll in Medicare Part D and go without creditable prescription drug coverage (insurance that is expected to pay, on average, as much as the standard Part D benefit) for 63 days in a row or more, you may have to pay a higher premium when you sign up for Part D later on. If you qualify for the Low-Income Subsidy program (also known as Extra Help),you don’t have to pay the late-enrollment penalty.
Some beneficiaries may have to pay an extra cost, known as the Part D Income-Related Monthly Adjustment Amount (IRMAA). This may apply to you if your modified adjusted gross income as reported on your IRS tax return from two years ago is above a certain amount. This income threshold may change from year to year; for the most updated information, visit Medicare.gov. The Part D-IRMAA is a high-income surcharge that is added to your plan premium. If you need to pay this extra amount, you’ll pay this directly to Medicare or the Railroad Retirement Board (not your Medicare plan). Social Security will notify you if you need to pay the Part D-IRMAA, based on your income.
Keep in mind that average premiums for Medicare Prescription Drug Plans and Medicare Advantage Prescription Drug plans may vary widely. One plan may require a $15 monthly premium, while another may require a $100 monthly premium, so it is important to shop around for a Medicare plan with a premium cost you’re comfortable with.
Medicare plans that include prescription drug coverage may require you to pay a yearly deductible before it will begin covering prescription drug costs. Your deductible is the amount you must pay out of pocket before your Medicare Prescription Drug Plan or Medicare Advantage Prescription Drug plan starts to cover its share of the costs.
The deductible amount may vary from plan to plan. Some Medicare plans don’t require a yearly deductible.
After you reach your yearly deductible, you may still be responsible for certain out-of-pocket costs, even after your Medicare plan has covered its share. This may include coinsurance and copayments. If you have to pay a coinsurance, you will be responsible for a percentage of the cost of the drug. For example, you may owe a 15% coinsurance each time you fill a particular prescription. If you have to pay a copayment, you will be responsible for paying a set amount for medications on a certain tier as determined by your Medicare plan. As mentioned, Medicare plans that cover prescription drugs place covered drugs into cost tiers, and medications on higher tiers may have higher copayments and coinsurance costs. Your cost sharing may also vary depending on whether you’re taking brand-name or generic medications; generics tend to have lower costs than brand-name prescription drugs.
The Medicare Part D coverage gap is a temporary limit on what your Medicare Prescription Drug Plan or Medicare Advantage Prescription Drug plan will pay for covered prescription drugs. Every Medicare plan that includes prescription drug coverage has one, but not every beneficiary will enter it; the likelihood that you’ll reach the coverage gap depends on the specific medications you take and their costs, including their dosage and whether they are brand-name or generic prescription drugs.
You enter the coverage gap, also known as the “donut hole”, once you and your Medicare plan have spent a certain amount on covered prescription drugs (including the deductible, if your plan has one). Once you’re in the coverage gap, you’re responsible for more of the costs of your prescription medications. In the past, beneficiaries who reached the coverage gap had to pay 100% of prescription drug costs; however, the Affordable Care Act slowly reduces the amount you have to pay out of pocket in the coverage gap through manufacturer discounts and government subsidies. The gap in your coverage will get smaller each year until the “donut hole” is eliminated entirely in 2020. For more information on your costs in the coverage gap for this year, visit Medicare.gov.
Once your costs in the coverage gap have reached a certain amount out of pocket, catastrophic plan coverage kicks in, and you’re out of the coverage gap. You’ll only be responsible for either a small coinsurance or copayment for covered prescription drugs the remainder of the calendar year.
This website and its contents are for informational purposes only. Nothing on the website should ever be used as a substitute for professional medical advice. You should always consult with your medical provider regarding diagnosis or treatment for a health condition, including decisions about the correct medication for your condition, as well as prior to undertaking any specific exercise or dietary routine.
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