Medicare, Part D...Explained
Although Medicare Part D is administered through private insurance companies, it is still a federal program. These private insurers offer retail prescription drug coverage to Medicare beneficiaries. Before 2006, when it began, tens of thousands of Medicare beneficiaries had little assistance with their retail drug costs. Often, they would spend thousands of dollars each year paying for their prescriptions out of pocket.
Luckily, today’s Medicare beneficiaries have better coverage with Part D. Beneficiaries may enroll in a stand-alone Part D drug plan that accompanies their Original Medicare benefits. They also can pick a Part D drug plan that is a built-in to a Part C Medicare Advantage plan.
How Part D Works
Medicare Part D is just insurance for prescription needs. Plan holders pay a monthly premium to an insurance carrier for the Part D plan. In return, the insurance carrier provides access to a network of pharmacies to buy prescription medications from. Instead of paying full price, there is a copay, or plan holders only pay a percentage of the drug’s cost. The insurance company pays the rest. Medicare Part D plans must follow all federal guidelines. Each insurance carrier is required to submit its plan outline to the Centers for Medicare and Medicaid Services for approval every year.
The Part D drug plan consists of 4 stages:
Annual Deductible–the allowable Medicare Part D deductible is $405 in 2018. Plans may charge plan holders the full Part D deductible, a partial deductible, or waive the deductible entirely. Plan holders pay the network discounted price for medications until the plan records the deductible is satisfied. After that initial coverage starts.
Initial Coverage–for this stage of Part D drug coverage, plan holders pay a copay for medications based on the drug formulary. Each drug plan will separate its medicines into tiers. Each tier has a copay amount that the plan holders pay. Let's say a plan might assign a $7 copay for a Tier 1 generic medication. Maybe Tier 3 is a preferred brand name for a $40 copay, and so on. The insurance company tracks the spending by both the plan holder and the insurance company until combined they have spent a total of $3750 in 2018.
The Coverage Gap–after the initial coverage limit is reached for the year, the coverage gap begins. During the gap, there are still significant discounts for generic medications. Plan holders may only pay 35% of brand name medications, and 44% of generics. The gap spending will continue until the total out-of-pocket drug costs has been reached. In 2018 it was $5000.
Catastrophic Coverage–once the end of the coverage gap is reached, the plan will kick in to pay 95% of the costs of formulary medications for the remainder of the year. This feature in Part D drug plans helps limit costs of expensive medications.
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This is part 7 of a multi-post series. Please visit the other Insurance Career posts below: