How Does Part D Work – Part D is a critical part of having a complete health insurance package. Other parts of Medicare can help you with your inpatient and outpatient coverage, but Part D is specifically for prescription drug coverage. If you take some time to understand how Part D works, you can get the most out of your benefits.
Medicare Part D Defined
Part D plans are available as stand-alone options or as part of a Medicare Advantage (Part C) plan. Regardless of which route you choose, Part D plans work the same way.
Part D plans are offered by private insurance companies who have been contracted by Medicare to provide the policies. They must follow the rules set by the Centers for Medicare and Medicaid Services (CMS), but coverage can still vary significantly from one plan to the next. Plans are based on service areas. Medicare beneficiaries can only choose to enroll in plans offered in their county or zip code.
Part D Drug Formularies
A drug formulary is a list of medications covered by the plan and is the first thing you should look at when searching for drug coverage. The drug formulary will list all medications and tell you which drug tier they fall into. Drug tiers dictate how much you’ll pay to refill the prescription.
All drug plans much include certain minimum requirements set by CMS. They must include at least one drug options to treat the following conditions:
- Antineoplastics (to inhibit cancer growth)
- Antidepressants (for depression)
- Anticonvulsants (for seizures)
- Antiretrovirals (for HIV/Aids)
- Antipsychotics (for mental health disorders)
- Immunosuppressants (for organ transplants)
Over-the-counter medications like pain relievers, vitamins, and minerals are not included in the coverage. The same goes for cosmetic drugs like those for hair growth, weight loss, etc.
Most plans have either four or five tiers. Medications are organized into tiers – the higher the tier, the higher the out-of-pocket cost.
- Tier 1: Preferred Generic Drugs
- Tier 2: Generic Drugs
- Tier 3: Preferred Brand Name Drugs
- Tier 4: Non-Preferred Drugs
- Tier 5: Specialty Drugs
Part D Coverage Phases
Every Part D plan has four coverage phases. You may or may not find yourself in all four phases at some point during the year.
Phase 1: The Deductible
Just like other insurance plans, Part D plans have a deductible. Most use the standard amount set by CMS each year. In 2022, that amount is $480. However, you may find a plan that has a lower or even $0 deductible. What’s even more helpful is that many plans waive the deductible for medications that fall into the first two drug tiers.
Phase 2: Initial Coverage
Once the deductible has been paid, you’ll enter the initial coverage phase. During this time, you can expect to pay typical coinsurance or copayment amounts when you refill your prescriptions.
Phase 3: The Coverage Gap
The coverage gap, also known as the donut hole, can be hard to understand. If you take expensive medications, you may find yourself in the donut hole. You will enter it once you and your insurance plan have paid a total of $4,430 for medications. (This number goes up every year.)
When you’re in the coverage gap, you can expect to pay more for your drugs – up to 25% of their cost. You will not enter the next phase until you have personally spent a total of $7,050.
Phase 4: Catastrophic Coverage
During the last phase, most of your prescriptions will be paid for by the Part D plan. Coverage during the catastrophic phase will look more similar to how it was during the initial coverage.
Part D Pharmacy Networks
Pharmacy networks play a big role in determining your out-of-pocket costs. Pharmacies are categorized as preferred, standard, or out-of-network.
Using a preferred pharmacy is the best way to keep your drug costs as low as possible. You’ll find the best rates at a preferred pharmacy. Standard pharmacies still offer coverage, but you will pay more than if you used a preferred one. Your Part D plan will not work at an out-of-network pharmacy, except in emergency situations.
Part D Late Enrollment Penalty
The most common Medicare penalty is the Part B Late Enrollment Penalty. Many Medicare beneficiaries assume that if they are not taking medications, they don’t need to enroll in Part D. That makes sense, right?
It does, but unfortunately, if you won’t enroll as soon as you are eligible, you’ll pay a penalty later. Fortunately, there are very inexpensive plans you can choose that will help you avoid the penalty.
The Part D penalty will be calculated by using the total number of months you went without coverage. To calculate the penalty, you’ll need to know the national base beneficiary premium, which is currently $33.37. The formula is:
1% x base premium x months without coverage
So, if you went 24 months without coverage, your penalty would be $8 per month. You’ll add this amount to the cost of your Part D plan, and you must continue to pay the penalty for as long as you have Part D coverage – presumably, for the rest of your life.
You can choose to delay Part D enrollment if you have credible drug coverage in place.
What Is Credible Part D Coverage?
There are four qualifications for credible prescription coverage:
- It pays at least 60% of prescription costs
- It covers both generic and name-brand medications
- It offers coverage at a variety of pharmacies
- It has no yearly benefit limit, OR it has a low deductible
If you’d like to learn more about Medicare Part D or any other part of Medicare, you can speak with one of our Medicare experts! Our licensed agents can help you decide which plans might be a good fit for you and then will submit enrollment paperwork on your behalf. Give us a call today to learn more.