Medicare

While you work, some of the money you earn automatically comes out of your paycheck and goes into a Medicare fund with other workers’ contributions. If you have to stop working because of a disability, Medicare will take money from this fund and use it to help you pay for your medical costs. Medicare is run by the federal government, though certain aspects of it are operated by private insurance companies, including its prescription drug coverage.

Like any insurance program, there are detailed rules about who can participate in Medicare and limits to what medical costs Medicare will help pay for. Medicare is very complicated because it is actually a set of programs, rather than just a single plan. Each program helps pay for a different aspect of your medical care. The programs are called “parts” and are named by letters. Medicare Part D is the program that helps pay for prescription drugs and is what we will focus on here.

To read a detailed description of all the parts of Medicare, read DB101's Medicare article.

Part D Prescription Drug Coverage

Medicare Part D is also called Medicare Prescription Drug Coverage or MedicareRx. In the Part D program, private companies offer prescription drug coverage to people on Medicare. Each plan has a list of drugs that they will help pay for if you sign up with their plan. This list is called a formulary.

Part D coverage will not supply you with entirely free medications. Generally, you will be responsible for paying these expenses:

  • A monthly premium. That means that you will have to pay a certain amount of money each month for your Part D plan, whether or not you purchase any medications.
  • A deductible. That means that your Part D plan will not pay for any of your medications until you have spent a certain amount of money on medications yourself.
  • Copayments or co-insurance. Copayments are a certain amount of money you have to spend each time you purchase a medication. Co-insurance means you have to spend a certain percent of a medication’s price out of pocket.

The premium, deductible, copayment, and co-insurance levels change each year on January 1. If you qualify for Medicare’s Low Income Subsidy, you may not have to pay all of these expenses. Persons who are enrolled in Part D and are enrolled in Medical Assistance have no cost-sharing for Part D covered drugs.

People who are on a Medicare Savings Program, SSI, or are eligible for both Medical Assistance (MA) and Medicare have special rules for signing up, switching Part D plans, and paying for costs.

Getting Part D Coverage

There are 2 ways to get Part D drug coverage:

  1. Enroll in a Stand Alone Prescription Drug Plan that only offers drug coverage. To enroll, you already have to be enrolled in Part A and/or Part B of Original Medicare or in a Medicare Advantage Plan that doesn’t offer drug coverage.
  2. Through your Medicare Advantage Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Private Fee-For-Service Plan, or Special Needs Plan. Most of these plans offer prescription drug coverage as part of their larger package of Medicare benefits. Their drug benefits are called Medicare Advantage – Prescription Drug (MA-PD) plans.

You are not required to sign up for Medicare Part D if you have Medicare. Here are a couple of factors you should consider when you decide whether or not to sign up for Part D:

  • If you have prescription drug coverage through your employer, union, retiree, or veterans (VA) coverage, those benefits may be better than Medicare Part D. If you have drug coverage from another source, compare your current policy with a Medicare Part D plan. One way to compare them is to ask your current drug insurance provider if your coverage is “creditable coverage.” Creditable coverage means that it is as good or better than Medicare Part D. Then, ask what happens if you sign up for Part D. Some insurance plans might not allow you to drop prescription coverage without also losing other benefits, and some plans might not let you get coverage back if you change your mind.
  • If you don’t sign up for Medicare Part D during your initial enrollment period and change your mind later, there will be a penalty fee for signing up. It may be worth it to sign up for an inexpensive Medicare Part D plan so that you can avoid these penalties. If you currently have creditable coverage through another insurance plan, you can switch to Part D after the initial enrollment period without paying any penalties.

Choosing a Part D Plan

The best Part D Plan for you depends on the medications you need. To choose a Part D plan, make a list that includes the following information:

  • All of the medications you are currently taking, including:
    • The dosage amount
    • How often you take them
    • If they are brand name or generic
  • Ask your doctor about possible substitutes for the drugs you take
  • The pharmacy where you prefer to get your medications and if you prefer mail order

For in-depth, free, personalized assistance with plan selection, Chat with a Hub expert. You should also compare your options online with Medicare’s Prescription Drug Plan Finder.

The donut hole

Medicare Part D has a gap in prescription drug coverage called the “donut hole.” Until 2011, when a person’s prescription drug costs reached a certain amount, Medicare stopped paying for any of their prescription drug costs. The person had to pay for 100% their drugs out-of-pocket until they reached the maximum out-of-pocket amount. Once a person reached this maximum, they would be out of the donut hole and Medicare would start to help cover the costs again.

Now, people on Medicare who fall within the prescription drug coverage gap (the donut hole) will get a 75% discount on brand-name prescription drugs and a 63% discount on generics. The full cost of brand-name drugs (rather than the discounted amount) will still count towards the person’s out-of-pocket maximum, the amount at which Medicare starts to cover some prescription drug costs again. For generic drugs, only the discounted price will count.

This discount will continue to grow until 2020, when the donut hole coverage gap is closed completely and you don’t have to worry about this issue.