What is Medicare Part D?
Medicare Part D, commonly referred to as Prescription Drug Plans or PDP, is coverage for prescription drugs obtained from a retail pharmacy. These plans are sold by insurance companies and give you access to medications at a more affordable rate. Part D coverage can be obtained as a stand-alone plan or within a Medicare Advantage Plan.
In this article:
|What does Medicare Part D cover?||Jump to|
|Medicare Part D costs||Jump to|
|The 4 coverage stages of Part D||Jump to|
|How do I enroll in Part D?||Jump to|
What does Medicare Part D cover?
All Part D drug plans must cover a wide range of prescription drugs that are commonly used by Medicare beneficiaries. This includes most drugs that are in protected classes for people with chronic conditions, like epilepsy, mental illness, cancer and HIV/AIDS.
Each Part D Plan (and Medicare Advantage Plan with Part D coverage) has what’s called a formulary. The formulary is a list of covered drugs and usually includes multiple tiers. The tiers define how much a drug will cost. For example, a drug in a lower tier will generally cost you less than one in a higher tier.
Medicare Part D Costs
There are several costs you should keep in mind when it comes to Medicare Part D, including your monthly premiums, cost-sharing copays/coinsurance and possible deductible spending.
Part D Monthly Premiums
Since Part D drug plans are sold by insurance companies, they get to set their own rates. These rates vary depending on the plan and can range from as low as $7 in some areas to over $200+ with the average monthly premium projected to be $33 in 2022.i When shopping for Part D, it’s important to consider more than just the premium. You’ll want to pay close attention to the formulary and whether it includes the prescriptions you need. Just because a plan is the cheapest in your area, doesn’t mean it’s right for you.
If you have a higher income (above $87,000 if you file individually or $174,0000 if you’re married and file jointly in 2022ii) you might pay more for Medicare Part D.
Part D Copays and Coinsurance
Part D Plans are cost-sharing plans, meaning you’re splitting the cost of your medications with your insurance provider. Your costs will come in the form of copays (a set dollar amount) or coinsurance (a percentage of the drug’s cost). Part D copays and coinsurance are determined by the tier the medication resides under in the plan’s formulary. They can vary between insurance companies. For example, one company might charge a $5 copay for a Tier 1 drug, while another may charge $7.
Some plans may come with a deductible that must be met before your cost-sharing kicks in. Your deductible is the first out of 4 stages in a Part D Plan. Let’s review those stages now.
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The 4 Coverage Stages of Part D
Your Part D costs can change throughout the year depending on the coverage stage you’re in. There are 4 stages, and they include:
- Annual Deductible
- Initial Coverage
- Coverage Gap (aka the Donut Hole)
- Catastrophic Coverage
While Part D drug plans are sold by private insurance companies, the program is regulated by the Center for Medicare and Medicaid Services (CMS) – the federal Medicare department. CMS sets minimum guidelines for Part D plans annually including the threshold for each of the stages.
Stage 1: Deductible
This stage begins when you purchase your first prescription of the plan year. You’ll pay the full cost of your prescriptions until you meet your deductible. In 2022, insurance companies can require up to a $480 deductible before you benefits kick in.iii Some plans will charge a $0 deductible. In that case, you’ll immediately skip to Stage 2 – Initial Coverage.
Stage 2: Initial Coverage
This stage begins after you meet your deductible. If your plan doesn’t have a deductible, Initial Coverage begins immediately. During this stage, your plan shares the cost of each covered prescription drug you purchase. You’re responsible for paying your share in the form of a copay or coinsurance.
Your Initial Coverage stage will end when the total amount of your covered prescriptions (the amount spent by you and your plan) adds up to the initial coverage limit. This limit is set by Medicare annually. In 2022, the initial coverage limit is $4,430.iv
Stage 3: Coverage Gap (aka the Donut Hole)
The coverage gap, commonly referred to the Donut Hole, is a temporary limit on how much the plan will pay for your covered prescriptions. Not everyone enters the coverage gap. If you do meet your initial coverage limit and enter the gap, you’ll be responsible for paying 25% of the plan’s cost for covered drugs.iv
In 2022, your coverage gap ends when your total out-of-pocket costs on covered prescriptions (not including premiums) reaches $7,050.v
Technically, the Donut Hole was “closed” in 2020; however, this is misleading as there can still be a coverage gap. Read more about the “closed” Donut Hole and why it’s important when comparing plans here.
Stage 4: Catastrophic Coverage
Once Catastrophic Coverage kicks in, you’ll pay a low coinsurance or copay (usually equaling less than 5%) for all over your covered prescription drugs. You’ll remain under Catastrophic coverage until the end of your plan year.
How do I enroll in Medicare Part D?
On average, you’ll have access to about 23 Part D Plans in 2022. That’s in addition to 31 Medicare Advantage Plans that include Part D coverage.i Fortunately, we can assist you with evaluating each plan based on your prescriptions. We’ll help you determine if Part D or Medicare Advantage Plan is right for you and which plan offers the prescriptions you need at the lowest cost.
When to enroll in Medicare Part D?
Enrolling in a Medicare Part D plan is much different than enrolling in Original Medicare, because these plans are sold by private insurance companies and not provided by the government. You must first be enrolled in Medicare Part A and Part B. Then, you have the option of applying for a plan for the first time during one of these three enrollment periods:
- You 7-month Medicare Initial Enrollment Period starting 3 months before you turn 65
- Medicare Annual Enrollment Period between October 15 – December 7
- A Medicare-approved Special Enrollment Period
Part D Late Enrollment Penalty
You could owe a late enrollment penalty if you delay enrolling into Part D until after your Initial Enrollment Period is over and go more than 63 days in a row without creditable prescription drug coverage. That penalty comes in the form of higher monthly premiums for as long as you’re in the program.
Ensurem Trusted Expertise
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i KFF.org. “Medicare Part D: A First Look at Medicare Prescription Drug Plans in 2022.” Accessed Jan. 28, 2022.
ii Medicare.gov. “Monthly premium for drug plans.” Accessed Jan. 28, 2022.
iii Medicare.gov. “Yearly deductible for drug plans.” Accessed Jan. 28, 2022.
iv Medicare.gov. “Costs in the coverage gap.” Accessed Jan. 28, 2022.
v Medicare.gov. “Catastrophic coverage.” Accessed Jan. 28, 2022.
Denise Austin, 65, Ensurem Ambassador
Best-Selling Author, Creator of Fit Over 50 Magazine
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