Deep Dive Into Medicare Part D

Medicare Part D

What Is It, What Does It Cover and Not Cover?

Medicare Part D is medication insurance, a federal program administered by private insurance companies. It helps cover brand-name, generic, and specialty medications. It started in 2006, and before that, thousands of Medicare beneficiaries had a hard time with retail drug costs. Like Part B, it also has a yearly deductible; in 2024 it’s $545.

When Am I Eligible for Part D?

You are eligible for Part D when you are enrolled in either Part A and/or Part B. You must live in the plan’s service area.

How Do You Get Part D?

You can enroll in Part D prescription drug plan (PDP) or enroll in a Medicare Advantage plan with drug coverage, such as a Part C Medicare Advantage Prescription Drug (MAPD) plan. If you choose a PDP, then your drug insurance plan is separate from your Medicare Supplement card, if you have one.

How Does Part D Work?

If you choose an MAPD plan, your Part D and usually the deductible is included in the plan. If you choose a PDP, you pay a monthly premium to an insurance carrier for your Part D. Then, you use the insurance carrier’s network of pharmacies to buy your prescription medications. Instead of paying full price, you pay a copay or a percentage of the drug’s cost, depending on the drug’s Tier.

Formularies and Tiers

Prescription coverage varies by plan; every plan has a list of drugs that the plan covers, known as a formulary. Some plans have very broad formularies, covering many costly drugs, while others have limited formularies, so take your plan into account if you take a lot of different medications.

Drug Tiers are another important consideration when choosing a drug plan or a plan with drug coverage. Here are the levels:

Tier 1 – Preferred Generic Drugs (lowest copay)
Tier 2 – Generic Drugs (medium copay)
Tier 3 – Preferred Brand Drugs (higher copay)
Tier 4 – Non-Preferred Drugs (higher copay)
Tier 5 – Specialty Tier Drugs (highest copay)
Tier 6 – This is sometimes called the Select Tier; not all plans carry a Select Tier, and this tier often offers such medications as Viagra or weight-loss medications for a very low cost. (You won’t find this on a stand-alone Part D drug plan, only on a Medicare Advantage Prescription Drug (MAPD) plan.)

Prescriptions in Tiers 1, 2, and 3 are based on many factors, like percentage of ingredient (1% vs. 2%) and type of medication (lotion, cream, tablet, capsule, liquid, suppository, etc.). This is why I’m so specific when I talk to someone about their medications and the dosages and how the drug is delivered.

As I said before, it pays to compare drug plans, as companies some will have medications at a Tier 3 while others have that same drug at Tier 2, a big difference in cost.

The Four Parts of Medicare Part D

The Annual Deductible

In 2024 the annual Part D deductible is $545; with many MAPD plans and a few PDP plans, the deductible is covered by the plan, so you go straight to Initial Coverage.

Initial Coverage

During this stage of Part D drug coverage, you will pay a copay for any medications based on their tiers, above. The insurance company AND Medicare both track the spending by you and the insurance company until together you have spent a total of $5,030 this year.

The Coverage Gap, or “The Donut Hole”

After you and your drug company together have spent $5,030 in the True Out Of Pocket (TrOOP) cost of medications, you have entered the Coverage Gap, also known as The Donut Hole. This $5,030 this year includes what you have paid in deductibles, copays, and gap spending that year, plus the manufacturer discounts. Now you have to pay 25% of all drug costs for your prescriptions, up to $8,000. Once you have spent up to this year’s limit, you exit The Donut Hole, and your drug plan helps pay for covered drugs again.

While you’re in the doughnut hole, you’ll now receive a 75% discount on both brand-name and generic drugs. Prescription drug manufacturers pick up 70% of that tab and insurers 5%. You pay the remaining 25%.

One Way to Stay Out of the Coverage Gap: Buy your least costly generic drugs directly out of your pocket (don’t go through your insurance). For example, go through your pharmacy’s plan for generic drugs or use a coupon from a company like GoodRX.

Catastrophic Coverage

The Catastrophic Coverage Stage, with the drug manufacturers picking up the costs, begins when your drug costs reach $8,000 in 2024. You’re done, hon!

Which Costs Go Toward Catastrophic Coverage?

  • Any deductibles you paid before you entered the doughnut hole;
  • The 25% you contributed while in the doughnut hole;
  • The 70% that pharmaceutical companies paid on your behalf.

The TrOOP Explained

Consider the first $5,030 as credit from the Federal Government; after that, you pay a higher copay. But how do I get to the first $5,030? Let’s say you take three drugs in different drug tiers (buckle up, there’s lots of math!):

What Other Things Affect Drug Costs?

Higher Premiums for higher income!

Remember our friend, IRMAA? She likes to raise Part D premiums too!

Late Enrollment Penalty (LEP)

if you don’t sign up for a drug plan when you first can, there is a permanent 1% per month Late Enrollment Penalty for all the time you could have had a drug plan and didn’t. So someone missing Part D for two years would pay 24% times the National Average Premium, which this year is $34.70; this would be a penalty of $8.33, rounded up to $8.40 a month this year!

Is that Late Enrollment Penalty “Permanent” Permanent? Yes, unless you qualify for a Low-Income Supplement, at which point that LEP is on hold!

Don’t think you owe it? Appeal the penalty with this form.

Low-Income Supplement (LIS) – also called “Extra Help”

A Low-Income Supplement (LIS) provides help with prescription drug costs by helping with the monthly Part D premium annual deductible, and copayments. Also, people enrolled in the Extra Help program do not enter The Donut Hole. The amount of subsidy depends on your income compared to the Federal Poverty Level and resource limitations set by Social Security every year. For more about LIS and applying, click here, because “The Rent” is just too darned high.

Chronic Special Needs Plans (C-SNPs)

Do you take heart medicine or inject yourself with insulin (or both!)? There’s help for the costs of various specific medications through C-SNPs. Some Medicare Advantage companies have plans that cover medications for asthma, diabetes, heart disease, and even mental disorders with specialty plans, and part of their benefit is a reduced cost for medications for those specific conditions. For example, in California there are plans that cover certain kinds of insulin for zero! When I have a client on this kind of plan who uses insulin, I write a letter to his or her doctor listing the zero-copay insulins and request that my client have one of those prescribed. That’s one way to save money!

Some Questions About Part D

Q: I don’t take drugs, why should I get a Part D plan?
A: See Late Enrollment Penalty, above! Avoid this problem by getting an inexpensive PDP.

Q: How much are Part D premiums?
A: It depends on your needs. If you use little to no medications, there are plans as low as around $5 a month available – and much higher, too!

Q: What if I have other insurance?
A: If you have continuous creditable drug coverage through Medi-Cal/Medicaid, an employer or union group, COBRA, TRICARE, TRICARE for Life, etc, you’re won’t be fined for not having a drug plan if you choose a private one later. Just make sure you have proof!

Q: What’s that “Creditable Coverage” thingie again?
A: It’s drug coverage that at least as good or better than that required by Medicare.

Q: I’m confused about how to pick out a Part D drug plan. Can you help me?
A: Send me a list of your medications and your favorite pharmacies and I’ll find you a great plan!

Required Disclaimer:  “We do not offer every plan available in your area.  Currently we represent 0 to 28 organizations that offer 0 to 28 or more products in your area.  Please contact, 1-800-MEDICARE, or your local State Health Insurance Program to get information on all of your options.”  So there.

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