Medicare offers a federally subsidized drug program for seniors, in which private health insurers offer limited insurance coverage of prescription drugs to elderly and disabled Medicare recipients. The drug benefit is available only through insurers that contract with Medicare to market drug plans.
What does the drug benefit cost and what do you get?
Medicare recipients who elect to be covered by the drug benefit will pay premiums averaging around $30 a month in 2021. This is an average; some plans will charge more, some less.
After meeting a deductible, which can't be more than $445 (in 2021), you need to pay your co-insurance or co-payment amount and Medicare will pay the rest. Co-insurance is usually a percentage (for example 20 percent of the cost of the drug). If you pay co-insurance, these amounts may vary throughout the year due to changes in the drug’s total cost. Once you and your plan pay $4,130 (in 2021) in a year, you enter the coverage gap. Previously coverage stopped completely at this point until total out-of-pocket spending reached a certain amount. (This coverage gap is sometimes called the "doughnut hole".) However, the Affordable Care Act has mostly eliminated the doughnut hole. In 2021, until your total out-of-pocket spending reaches $6,550, you’ll pay 25 percent for brand-name and generic drugs. Once total spending for your covered drugs exceeds $6,550 (called "catastrophic coverage"), you are out of the coverage gap and you will only pay a small co-payment or co-insurance amount. For more information, click here.
The amount of out-of-pocket costs that you have to pay to reach catastrophic coverage will vary, depending on the type of drugs you take. For brand name drugs, you will only pay a certain percent of the price, but the entire price will count toward the amount you need to qualify for catastrophic coverage. With generic drugs, only the amount you pay will count toward getting you out of the doughnut hole. For more information about the coverage gap, click here.
One way to avoid the coverage gap is to pick a plan with low drug prices, since it is accumulating drug costs that brings you closer to the gap -- not low premiums, co-payments, or deductibles. (We are describing Medicare's basic prescription drug coverage, which all insurers must offer. Insurers may also offer more generous coverage and charge a higher premium for it.)
Bear in mind that only payments for drugs that are covered by your plan (see below) count towards the out-of-pocket threshold. Also, any help with paying for Medicare Part D costs that you receive from an employer health plan or other insurance does not count toward this limit. Drugs purchased abroad (such as from Canada) will not be covered by the Medicare benefit and will not count toward the out-of-pocket limit.
Will drugs you take be covered?
All Part D enrollees should have at least two Medicare private drug plans to choose from. The insurers choose the medicines -- both brand-name and generic -- that they will include in a plan's "formulary," the roster of drugs the plan covers and will pay for. However, each plan formulary must include at least two drugs in each drug class, and must cover a majority of the drugs in certain classes, such as antidepressants and anti-cancer agents.
Since each drug plan offers a different formulary, and the same drug may vary in price from plan to plan, the most important job for a Medicare beneficiary signing up for Part D is to determine whether the prescription drugs they need or anticipate needing -- are covered under a particular plan and how much they cost.
Plans differ in the monthly premiums they charge, deductibles, the drugs they cover, the cost of those drugs, limitations on drug purchases, and the convenience of the plan's pharmacy network, among other factors. A comparison tool is available on Medicare's Web site that allows you to search for Medicare private drug plans in your region and compare their costs, covered drugs and pharmacy networks. The information is also available by calling 1-800-MEDICARE. In addition, the Medicare & You handbook provides information about the Medicare private drug plans in your area. You can also click here for a Drug Plan Comparison Worksheet that allows beneficiaries to note important information about each plan, compare the plans side by side, and identify the one that best meets their needs.
But it's possible that all your diligent research could come to nothing because after you have enrolled in what seems to be the best plan, the plan may discontinue coverage or increase the cost of any particular drug! Can you then switch plans? Only those eligible for both Medicare and Medicaid (see below) may switch plans whenever they want. Other beneficiaries will be locked into their choice for a full year; however, you won't lose coverage for any drugs you are currently taking. If a company drops coverage for a drug, it must continue to cover participants currently taking that drug until the end of the year. There are some exceptions -- for example, if the drug is determined to be unsafe or a lower-cost generic drug comes on the market.
Medicare Part D does not cover certain drugs, including barbiturates and benzodiazepines, which are prescribed for older people to treat insomnia, seizure disorders, anxiety, panic attacks, and muscle spasms. States have the option of providing Medicaid coverage for the excluded drugs.
Each Medicare drug plan will likely give you a list of local pharmacies where you can obtain their covered drugs.
Who may enroll?
Anyone who has either Medicare Part A or Medicare Part B (or both) can get Medicare Part D, Medicare's prescription drug coverage. Bear in mind, however, that Medicare Part D will not pay for drugs that could have been paid for under Medicare Part A or Medicare Part B. These drugs will not be covered even if the beneficiary does not have either Part A or Part B.
When should you enroll?
To avoid a penalty, you need to enroll during your Initial Enrollment Period (IEP). Your IEP for Part D is the same as for Part B. It is a seven-month period that includes the three months before the month you become eligible, the month you are eligible and three months after the month you become eligible.
How do you enroll?
Once you have chosen the Medicare private drug plan you want to enroll in, you can contact the company offering the plan and ask for a paper application, or complete an online application on the plan's Web site, if the plan allows online applications. The online application also may be available on Medicare's Web site.
If you cannot enroll yourself, a representative who is authorized under state law can enroll for you. This could include a health care proxy, an agent acting under a power of attorney, or another surrogate decision maker as defined by state law.
If you are in a Medicare HMO or PPO, you can enroll in a plan offered by the company that sponsors your Medicare health plan.
Late enrollment penalties
Medicare beneficiaries may be subject to significant financial penalties for late enrollment. For every month you delay enrollment past the Initial Enrollment Period, the Medicare Part D premium will increase at least 1 percent. For example, if the premium is $40 a month, and you delay enrollment for 15 months, your premium penalty would be $6 (1 percent x 15 x $40 = $6), meaning that you would pay $46 a month, not $40, for coverage that year and an extra $6 a month each succeeding year.
Beneficiaries are exempt from these penalties if they did not enroll because they had drug coverage from a private insurer, such as through a retirement plan, at least as good as Medicare's. This is called "creditable coverage. Your insurer should have let you know if their coverage will be considered creditable.
Restrictions on drug plan marketing
As noted, billions of dollars are at stake in convincing Medicare recipients to sign up for this benefit. The Centers for Medicare & Medicaid Services (CMS) has issued marketing guidelines for companies offering prescription drug plans. Approved drug plans are prohibited from making door-to-door sales calls or sending unsolicited e-mails. Plans also must comply with the National Do-Not-Call Registry rules, honor "do not call again" requests, and abide by federal and state calling hours and any other relevant requirements. (Federal rules do not allow telemarketers to call before 8 a.m. or after 9 p.m. State rules may differ.)
Plan marketing representatives are not allowed to request personal information such as Social Security Numbers, bank account numbers, or credit card numbers.
Beware of scams
Con artists use the drug benefit as a wedge to convince unsuspecting Medicare recipients to part with personal information like bank account numbers. Residents of at least 13 states have reported a scam in which criminals attempt to sell fake Medicare prescription drug cards for the Part D benefit. Since plans can't market until October, any contacts before that time are suspect. Anyone who is unsure about a contact should call Medicare at 1-800-MEDICARE.
Social Security will be contacting low-income Medicare recipients who have incomplete applications or who haven't sent one in. Social Security representatives generally will not ask for Social Security numbers, bank account numbers, credit card numbers or life insurance policy numbers. If beneficiaries are unsure a caller is really from Social Security, they can verify the call by contacting the agency at 1-800-772-1213.
For more information . . .
The Medicare drug benefit is a complicated program (the program's rules and explanatory materials run to 1,172 pages). No single article can address all the questions or issues that beneficiaries may have. Following are some sources for more detailed information:
Medicare & You Handbook, Centers for Medicare & Medicaid Services.
Choosing a Medicare Prescription Drug Plan, The Medicare Rights Center
The Center for Medicare Advocacy's Medicare Part D page.
Definitions of Selected Health Insurance Terminology Under Medicare Part D, Center for Medicare Advocacy, Inc.
Resources on the Medicare Prescription Drug Benefit, Kaiser Family Foundation.
(Some of the above documents are in PDF format. If you do not have the free PDF reader installed on your computer, download it here.)
Have further questions about Medicare? The Medicare Rights Center operates a toll-free hotline where you can get answers from counselors. The hotline is open Monday through Thursday, 9am-2pm Eastern Time. Call (800) 333-4114.