Medicare Prescription Drug Plan
Perhaps one of the most confusing aspects to Medicare is the Part D Prescription Drug Plan (PDP). The reason for the confusion is that the government designed the benefit and then turned the model over to private insurance companies for implementation.
The result is that many insurance companies each provide multiple plans. None of these plans have the same premiums or co-pays. The other point of confusion is that each insurance company has their own formulary. A formulary is the list of medications the company will cover on the drug plan and how they classify that medication.
Tier Drugs Vary From Plan to Plan
The formulary consists of tiers. A Tier One drug is considered a preferred generic drug. A Tier Two drug is a generic drug, a Tier Three drug is a preferred brand drug, a Tier Four drug is a non-preferred brand drug, and, a Tier Five drug is a specialty drug.
A drug may be classified differently by the various companies. What is a Tier Three drug with one company may be a Tier Four with another.
It can all be very confusing. The good thing is that most people, regardless of the plan they sign up for, will save money. Finding the right plan will save you more money.
How to Select the Best Plan For Your Needs
The key to finding the right plan is your own personal list of medications. You must look at YOUR medications and how the different companies rate them on their formulary. Look to make sure all your medications are covered. There are a handful of medications not covered by any company and are excluded by Medicare. This list can change each year. The insurance companies are required to cover medications in all the major classifications of drugs but not all drugs.
Once you know how the company rates your medications, you can then add up the co-pays to determine an estimated cost for your medications. The lowest premium may not necessarily be the lowest overall cost. The Medicare website has a comparison tool that can help you compare the various plans.
You need to consider the monthly premium you'll be paying for the plan. Look at your drug plan from a total cost perspective (drug cost plus premium cost). You may think you're done at this point, but there is one more thing to consider: Will you enter the dreaded "Donut Hole"?
The "Donut Hole" Explained
The "Donut Hole" or coverage gap begins when your drug costs (not what you have paid or the co-pay, but what the drug actually costs) reaches $3,310 (2016).
Once you reach the "Donut Hole", you will pay 45% (2016) of the cost of brand drugs and 58% (2016) of the cost of generic drugs until you reach the catastrophic level. You will pay less each year during the "Donut Hole" as it will go away by 2020.
If your drugs don't change much, you will get to the "Donut Hole" about the same time each year. We encourage all our clients to talk to their doctors about prescribing as many generic drugs as possible to help keep them from getting into the dreaded "Donut Hole".
The "Donut Hole" ends when you get to the catastrophic level. This means you have paid $4,860 (2016) out of your own pocket. This includes some of the money that was paid on your behalf during the "Donut Hole" period. At the catastrophic level, your costs are $2.95 for generic medications and $7.40 for brand medications or 5% of the cost, whichever is greater.
A point to note is that until the "Donut Hole", we've been talking about drug cost. To reach the catastrophic level you look at how much you have actually spend out of your pocket. These are two different numbers which adds one more thing to something already confusing.
We know this sounds difficult and like a lot of work. It is! If you live in Kentucky, Indiana, Ohio, or South Carolina, we can help you. We'll take your list of medications and we'll do the work for you and present you with the lowest overall cost plan for the medications you're taking. We'll let you know if and when you'll get to the coverage gap. There are also tools available to help you on the Medicare website.
Once you select a plan, you are locked into that plan for one calendar year. Each year from October 15th to December 7th during the annual enrollment period, you have the chance to change your plan for the upcoming year. Imagine Insurance Advisors suggests you re-evaluate your plan each year. You may change for a variety of reasons:
- Your medications changed over the year
- You added a number of new medications
- Your costs have increased and you are now in the coverage gap
- The company you have your plan with changed their formulary, co-pays or premium
Part D 1% Penalty
While the government does not require everyone to have prescription drug coverage, they have instituted a penalty for those who do not sign up for one when they are eligible.
If you do not sign up for a Part D Prescription Drug Plan (PDP) or a Medicare Advantage Plan with drug coverage (MAPD) when you are first eligible for Medicare, then when you do sign up for a plan, there will be a 1% per month penalty added to your plan's premium. This is based on the average plan cost for the year ($.33 for 2016).
This penalty will stay with you for life. For example, if you go 24 months without a prescription drug plan before you sign up for one, your premium will be more than the ordinary person would pay. Also, you can only add or quit a drug plan during the annual enrollment period from October 15th to December 7th each year.
One thing I hear from clients is, "I don't take any medicine or I just take generic drugs I get for $4. It will cost me more to have a plan than to have no coverage." Our response is, "I know how you feel. If you choose to not have a plan in place, you will not be able to add one until the annual enrollment period at the end of the year. If you have a stroke or heart attack or your doctor puts you on a medication in May, you will have to pay 100% of the cost until you can enroll in a plan at the end of the year. In addition to that, when you do enroll, there will be a 1% per month penalty added to your premium for the rest of your life. Are you willing to accept that risk?" Our clients can then make an informed decision as to whether a drug plan makes sense or not.
There Is Assistance For People With Limited Financial Resources
Low-income individuals will pay a much smaller amount of their drug costs. Depending upon your income level, you may qualify for one of a number of levels of assistance. Those with very limited means can have drug coverage with no monthly premium, no deductible and very small co-pay for each medication. Others will pay less than a standard drug plan. People who receive extra help also have no "Donut Hole."
There are multiple levels for which you can qualify. We encourage you to contact the social security office and fill out the Application for Help with Medicare Prescription Drug Plan Costs. You can reach social security at 1-800-772-1213. You can also fill out their online form at www.ssa.gov. We encourage all of our clients to investigate this option to see if they can save money. Call us and we will help you submit the application. Circumstances can change, you may not have been eligible before but are now.