Medicare Part D Basics – Get to know your drug plan

October 5, 2021

What is Medicare Part D?

Part D is Medicare’s prescription drug program and was designed to help cover the costs of prescriptions. It was introduced in 2003 as part of the Medicare Modernization Act and was officially available to the public in 2006.

Medicare Part D includes a variety of drug plans, each covering its own set of drugs. The list of drugs that a plan covers is called a formulary. The cost of your prescription depends on the types of drugs you need and whether your pharmacy participates in your plan’s network. There is no standard monthly premium for Part D, as each drug plan sets its premiums every year.

Do I need to purchase a separate drug plan?

If you currently have only Original Medicare, then you do not have coverage for your prescription drug costs. These costs can add up quickly, so it’s advisable to get a Part D plan to help with those expenses. You pay also pay a late penalty if you don’t have creditable drug coverage.

How Does Medicare Part D Work?

Medicare Part D is offered through dozens of insurance carriers, but there is a standard. The standard benefit requires several payments throughout a calendar year by the beneficiary. Here is the breakdown of the most basic model for Medicare Part D costs in 2022:

Deductibles*

Deductibles vary between Medicare drug plans. No Medicare drug plan may have a deductible more than $480 in 2022. Some Medicare drug plans don’t have a deductible.

Copayments/Coinsurance*

Once you and your plan spend $4,430 combined on drugs (including the deductible), you’ll pay no more than 25% of the cost for prescription drugs until your out-of-pocket spending is $7,050, under the standard drug benefit.

Coverage Gap or “Donut Hole”*

Most Medicare drug plans have a coverage gap (also called the “donut hole”). This means there’s a temporary limit on what the drug plan will cover for drugs.

Not everyone will enter the coverage gap. The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs. Once you and your plan have spent $4,430 on covered drugs in 2022, you’re in the coverage gap. This amount may change each year.

Catastrophic Coverage*

Once you’ve spent $7,050 out-of-pocket in 2022, you’re out of the coverage gap. Once you get out of the coverage gap (Medicare prescription drug coverage), you automatically get “catastrophic coverage.” It assures you only pay a small coinsurance amount or copayment for covered drugs for the rest of the year.

*All information from Centers for Medicare and Medicaid Services website, CMS.gov.

Medicare Part D Eligibility

The most suitable beneficiaries to enroll in Part D do not have any sort of drug coverage. To be eligible for Part D, you must be eligible to be insured by Medicare. In order to receive Part D coverage, you must enroll in a Part D plan. To enroll in a Part D plan, you must be eligible for and enrolled in Medicare Part A or B. The people who are enrolled in Medicaid will be enrolled in Medicare Part D by the government.

If you are eligible for Medicare Part D and enroll, you are granted eligibility to enroll in a Medicare Supplement Plan, which helps pay for premiums and other costs, but not prescription drugs.

Enrolling in Medicare Part D

It is best to enroll in a plan when you are first eligible for it, otherwise, you generally will pay higher premiums. Medicare has a 1% increase in the premium cost with every month you hold off enrollment (though there is a 62-day grace period). The period in which you are first eligible to enroll in Part D is known as the Initial Enrollment Period or IEP. If you do not enroll in a Part D plan during the IEP, you might not be able to join again until the Annual Enrollment Period, which is from Oct. 15 – Dec. 7.

The time frame for the Part D IEP mimics that of Part B; it lasts for 7 months, which includes the 3 months before the month you officially became eligible for Medicare, the month of your eligibility and the 3 months following the month you became eligible.

Example: If your eligibility month is in June (because you turn 65 then), your IEP will run from March 1 to September 30 of that year.

Once you know you are eligible to enroll in Part D coverage, you can choose a Part D plan that works best for your needs. Contact a SmartMatch licensed insurance agent to get assistance in finding the best plan for you. Or visit our Comparison Shopping tool to start the process.

Medicare Part D Plans

There are various Part D plans available through private insurance companies that Medicare approves. Drug plans differ by region and your prescription drug needs. There are two types of drug coverage available through Medicare:

  • PDP (Prescription Drug Plan): This is a stand-alone plan that provides drug coverage only. It is used by beneficiaries who have Original Medicare. It can be used with a Medicare Supplement plan which helps pay off other costs like premiums and deductibles.
  • Medicare Advantage Drug Plan (MA-PD): This plan helps cover both drugs and medical services. It is used by beneficiaries who receive their Medicare benefits in a single package. This is done through a Health Maintenance Organization (HMO) or a Preferred Provider Organization, or PPO.

Every type of plan includes the following payments: deductibles, premiums, copays, and coinsurance. The costs of the plans differ, as do the specific prescription drugs they cover. Checking the plan’s formulary will help you avoid choosing a plan that doesn’t cover the drugs you need.

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