In 2006, Medicare began covering some of the costs of prescription medications. This Medicare Part D prescription drug benefit is administered through private insurance companies and replaces drug coverage previously provided through medigap plans, many managed care plans, Medicare drug discount cards, and most Medicaid coverage.
Medicare Part D, however, is not a panacea. Most beneficiaries must pay a small monthly premium, a good-sized yearly deductible, and a copayment for each prescription. Gaps in most plans' coverage also lead to situations where beneficiaries become, for a time, responsible for all their prescription costs. (These coverage gaps are also aptly referred to as "doughnut holes," because people receive coverage both before and after reaching certain payment limits.)
Who Is Eligible for Medicare Part D?
Anyone entitled to Medicare Part A (whether actually enrolled or not), or anyone currently enrolled in Medicare Part B, may join Medicare Part D. (To learn more about Medicare Part A and Medicare Part B, read Nolo's article Medicare FAQ.)
Enrollment is voluntary, except for people who also receive benefits from Medicaid. If you qualify for Medicaid, the government automatically enrolls you in a Medicare Part D plan, through which you will receive your prescription drug coverage.
Medicare Part D does not replace drug coverage through Veterans Affairs, TRICARE, the Federal Employee Health Benefits program, or employer-sponsored drug coverage if that coverage is equal to what is offered by a basic Medicare Part D plan.
Part D Costs
Most beneficiaries pay a monthly premium, a yearly deductible, and a copayment for each prescription. However, some low-income Medicare beneficiaries can get help with Part D costs. Some Medicare beneficiaries may qualify for a low-income subsidy (LIS), called Extra Help, to help pay costs associated with Part D plans. Learn about eligibility requirements and apply for a subsidy at a local Social Security Administration office, online at www.ssa.gov, by calling the Social Security Administration at 800-772-1213, or at your local county social services office.
A premium is the monthly amount you pay directly to your prescription drug or managed care plan to maintain enrollment in Part D coverage. Amounts vary from $0-$50 per month.
The deductible is the amount you must pay out-of-pocket for covered medications before your Part D plan begins contributing. With most plans, the 2010 deductible is $310. However, some plans offer "first dollar" (no-deductible) coverage, which means the plan begins paying its share for an enrollee's first covered prescription of the year.
After you pay the deductible, your Part D plan pays most of the cost of covered drugs. You are personally responsible for the remainder, known as a copayment, or coinsurance. Under Medicare's minimum standards, people without a low-income subsidy pay no more than 25% of the prescription cost and the plan pays no less than 75% (after the deductible is met). This split continues until total covered expenditures have reached the year's coverage gap (see below).
Under several circumstances, a Part D plan enrollee may not have to pay the normal copayment for a covered drug. For example:
- People who live in a long-term care nursing facility and who are enrolled in both Medicare Part D and Medicaid have no copayments.
- Some plans waive or reduce copayments for certain drugs, particularly generic versions, to coax people to join that particular plan, but the plan can change this copayment waiver at any time.
- Pharmacies may waive copayments for any drug for an enrollee with a low-income subsidy. The waiver is not automatic; you have to ask for it.
Gaps in Part D Coverage
In addition to the costs discussed above, there are restrictions on prescriptions, as well as a coverage gap.
A notorious part of the Part D program is the coverage gap, popularly referred to as the "donut hole." After you and your plan together pay a certain amount for covered prescription drugs ($2,830 in 2010), your plan stops paying anything and you must pay the full cost of your prescriptions. The plan begins to pay again -- and pays 95% of all further costs -- when total expenditures reach a "catastrophic" level ($4,550 in 2010). Low-income Medicare beneficiaries with a subsidy do not have a coverage gap.
Restrictions on Coverage
Insurance companies may impose many different types of restrictions on their Part D coverage. For example:
- Plans may limit coverage to specific drugs. Each plan issues a list (called a formulary) of the drugs it covers, and a plan may change its formulary at any time.
- Plans may have different copayment amounts for different drugs.
- Some plans require the pharmacy to substitute a generic version of a drug unless you request and receive an exception.
- Plans may require documentation from your physician that you need a particular drug before the plan will cover it.
- Some plans impose a step therapy requirement, which requires you to try the least expensive drug in its class and then get your doctor to certify that that drug doesn't work before you may "step up" to the higher-cost drug.
- Some plans restrict the number of doses in each prescription.
Also, each Part D plan contracts with specific pharmacies to deliver medications, and you must get your drugs from a participating pharmacy to get full benefits.
Certain Drugs Excluded by Law
Medicare prohibits Part D plans from covering most medicines within certain drug categories, even if lawfully prescribed by a physician. These include:
- barbiturates (certain sedatives)
- benzodiazepines (certain tranquilizers)
- drugs used for weight loss or weight gain, and
- over-the-counter medications.
Some state Medicaid programs, however, continue covering some of these drugs for people who are also enrolled in a Medicare Part D plan.
Enrolling in Part D
You enroll in a Part D plan by signing up directly with the plan you want to join. If you don't enroll in a plan when you are first eligible for it, your premiums will be higher when you do finally enroll. (Medicare charges an additional 1% premium for each month you delay enrolling). So carefully consider when you will enroll in a Part D plan. Before you choose a specific plan, research several. (For help choosing a plan, read Nolo's article Medicare Part D: Choosing a Prescription Drug Plan.)
To learn more about Medicare Part D, and other health care options for your retirement years, get Social Security, Medicare & Government Pensions, by Joseph L. Matthews and Dorothy Matthews Berman (Nolo).