Everything You Need to Know about Medicare Part D

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This article was updated February 28, 2020.  

Medicare Part D is the newest branch of Medicare, established in 2006 to help Medicare beneficiaries cover the cost of expensive prescription drugs. Here’s everything you need to know about it.

Part D Cost

Unlike Medicare Part A and Part B, Part D does not have premiums set by the government, so costs can vary based on the plan you choose and where you live. Part D plans are sold by private insurance companies that can set their own prices. For 2020, the average nationwide monthly premium is $47.59, up from $32.50 in 2019. High-income earners may have to pay surcharges in addition to their monthly premium.

Part D Late Enrollment Penalty

Even if you don’t currently take any prescription drugs, it’s still important to have prescription drug coverage should your health change. If you don’t enroll in any type of prescription drug coverage when you first become eligible, you could be subject to a late enrollment penalty later on. You will have to pay this penalty in addition to your monthly premium the entire time you have prescription drug coverage. You may be able to avoid a late enrollment penalty if you have prescription drug coverage through Medicare Advantage, your employer-provided healthcare, or a spouse’s plan.

Part D Formulary

Each drug plan will have a formulary, or list of covered drugs. If you want a specific drug covered, it would be wise to check the plan’s formulary before you enroll. A plan has the right to change its formulary at any time, but it must give you 60 days’ notice if it does so. If your plan does change its formulary, you have the option of changing plans during the annual Open Enrollment Period, which is October 15 – December 7.  If you don’t want to change plans, you can also ask your doctor if there is a less expensive generic version of the drug available.

Part D Coverage Periods

There are four different coverage periods throughout the year: deductible period, initial coverage period, coverage gap, and catastrophic coverage period.

  1. The deductible period is when you’ll pay full price for your prescriptions until you meet your deductible. Deductibles vary from plan to plan, but no plan’s deductible can be higher than $435 in 2020.
  2. The initial coverage period begins after you’ve met your deductible. During this time, you will be responsible for copayments and coinsurance, which vary according to the drug and which plan you have.
  3. The coverage gap (or Medicare donut hole) is a period in which Medicare only pays part of your prescription drug costs. Formerly, Medicare didn’t pay for any of your prescription drug costs, although there were federally-funded discounts available to offset drug costs. More on this below.
  4. Catastrophic coverage begins once your total out-of-pocket costs have reached $6,350 in 2020. Here are the ways you can reach catastrophic coverage:
  • Your deductible
  • Copays and coinsurance
  • What you paid during the initial coverage period
  • Cost of brand-name drugs (including discounts) paid during the coverage gap
  • Amounts paid by others on your behalf
  • Amounts paid by State Pharmaceutical Assistance Program, AIDS Drug Assistance Program, and the Indian Health Service

Part D Donut Hole

The Medicare donut hole was formerly a period in which Medicare Part D didn’t cover any of your prescription drug costs. The donut hole has been slowly closing since the Affordable Care Act was passed in 2010. However, it’s closing for brand-name drugs in 2019 thanks to the Bipartisan Budget Act of 2018.

Once you and your drug plan have collectively paid $4,020 or more within a single calendar year, you will pay no more than 25 percent coinsurance for brand-name and generic drugs. However, you will need to pay $6,350 in 2020 to exit the donut hole and enter catastrophic coverage in which you will only pay 5 percent the cost of your drug. 

Part D Extra Help

If you are living on low or limited income, you may be able to qualify for Extra Help, or the Low-Income Subsidy (LIS), to help pay for your prescription drugs. Nearly 11 million Americans receive benefits from Extra Help annually. With Extra Help, you pay less in premiums and copayments or coinsurance for your prescription drug coverage. However, Medicare Advantage members with Part D coverage do not qualify for this assistance. To apply for Extra Help online, click here.

Part D Enrollment

You can enroll in Medicare Part D during your Initial Enrollment Period (IEP), as long as you have both Part A and Part B. Your IEP is the seven-month window that consists of the three months leading up to your 65th birthday, your birthday month, and the following three months. If you don’t enroll during your IEP, you can enroll during fall Open Enrollment: October 15 – December 7.

Find a Part D plan by searching here.

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