As you may know, Medicare is comprised of four parts that each cover specific services. Medicare Part A and Medicare Part B are known as “Original Medicare,” whereby the government pays providers directly for patient services received. Almost all doctors and hospitals in the United States accept Original Medicare. Medicare Part C, meanwhile, is a bundled plan alternative to Original Medicare; private companies approved by Medicare offer such plans. For the purposes of this post, however, we’ll zoom in on Medicare Part D. Unfortunately, as with so many other Medicare elements, this plan is also complicated—but we’ll do our best to simplify critical learnings you should most certainly keep in mind.

What Medicare Part D covers

Medicare-approved private insurance companies administer this plan and thus help pay for brand-name and generic outpatient prescription drugs: typically medicines you take at home rather than at a doctor’s office. Types of prescription drugs covered vary widely by plan and are published in each company’s formulary: a list of prescription drugs included.

To keep costs low, most plans divide their list of covered prescription drugs into tiers (usually five) based on cost. Generally, a drug in a lower tier will cost less than a drug in a higher one as brand name drugs are categorized in the highest tiers. As for the medications themselves, each plan’s formulary must include drug classes (a group of medications used to treat the same condition) that span all disease states and include at least two chemically distinct drugs within each one so that people with various medical conditions can procure the drugs they need.

All Part D plans must also cover all drugs in six protected classes—immunosuppressants, antidepressants, antipsychotics, anticonvulsants, antiretrovirals, and antineoplastics—to thus better position patients to treat specific conditions such as cancer, mental illness, and epilepsy.

Medicare Part D costs

Unfortunately, the cost of Medicare Part D is less than straightforward: meaning the amount you’ll pay for stand-alone plans depends on various factors including the individual plan, where you live, and how many medicines you take.

For starters, you’ll pay a monthly premium: the average cost for which is $31.50 a month, according to the Centers for Medicare and Medicaid Services (CMS). However, this number varies considerably for every enrollee and ranges from a few to a couple hundred dollars a month.

Most plans also include an annual deductible, meaning you’ll pay full price for your medicines until you meet that threshold (though some plans may in fact cover specific drugs without the need to meet your deductible or even offer the ability to waive it). As of 2023, plans can't impose a yearly deductible greater than $505 (per federal government regulation).

If you have high prescription drug costs, you may be subject to a coverage gap known as the “coverage phase” (formerly referred to as the “donut hole”). As of 2023, upon reaching a spending limit of $4,660 (the combined total of what you and your plan have paid for), you enter the “coverage gap”: whereby you’re responsible for 25% of prescription drug costs. However, you’ll leave the “coverage gap” and enter the “catastrophic coverage phase” after paying $7,400 in out-of-pocket costs for covered drugs. This simply means that for the remainder of the year, you’ll pay significantly lower copays or coinsurance for covered drugs. Starting in 2024, you won’t owe anything additional out of pocket after reaching the catastrophic coverage phase, and in 2025, a $2,000 out of-pocket spending cap will go into effect for Medicare Part D.

Researching plan options

The good news in all of this is that plan options in fact abound; in New Jersey alone, there are currently 24 stand-alone prescription drug plans to evaluate. Click here to kick off your Medicare Part D research, making sure to look beyond costs in making your final selection. More specifically, refer to Medicare’s Star Rating System (a one-to-five scale, with five as the best) measuring how well Medicare Part D plans perform per a variety of factors: including quality of care and customer service. Medicare also assigns plans one overarching star rating to summarize performance as a whole.

When comparing plans, check to see if your pharmacy (or an equally convenient one) is in the plan’s network and compare mail order prices as well—as most Medicare Part D plans negotiate with a network of pharmacies in search of the lowest costs.

How to qualify for Medicare Part D

If you’re eligible for Original Medicare (Parts A and B), you’re automatically eligible for Medicare Part D. That said, you’ll need to enroll in Medicare Part A and/or Part B as a prerequisite to Part D.

When you can enroll in Medicare Part D

You can obtain Part D via stand-alone coverage or a Medicare Advantage Plan. Regardless of the option you choose, you must go through a private insurance company regulated by Medicare (check their star ratings) and sign up during a designated enrollment period: such as your Initial Enrollment Period (most people have a seven-month window to enroll, beginning three months before turning 65 and ending three months after your birthday month), Annual Enrollment Period (October 15–December 7), or a Special Enrollment Period if you qualify (based on specific life events such as losing employer coverage).

Should you obtain Part D coverage through a Medicare Advantage plan, you can join during the fall open enrollment period for Medicare Advantage: which runs from October 15 through December 7 on an annual basis.

Why you should enroll in Medicare Part D

While Medicare Part D is technically optional, you must have credible prescription drug coverage, ideally at the time of enrollment—such as through an employer or individual health insurance—meaning your current plan is expected to pay, on average, as much as standard Medicare prescription drug coverage.

A failure to go without credible prescription drug coverage for more than 62 consecutive days after you’re first eligible means you’ll be levied a late enrollment penalty once you do in fact enroll. This penalty is permanent, and its scope depends on how long you lacked Part D or credible prescription coverage. With this in mind, if you don’t have coverage, you should enroll in Part D as soon as you’re eligible for Medicare.

If you’re currently under a group plan that includes prescription drug coverage and you’re Medicare-eligible, your provider is required to communicate annually—in writing—whether or not your plan meets the criteria for credible coverage.

Switching Medicare Part D plans

If you enroll and later learn your current plan isn't meeting your needs, you can in fact change plans and do so during the open enrollment period for Medicare: regardless of whether you have a stand-alone or Medicare Advantage plan. Even if you're happy with your current plan, evaluating other plans during open enrollment is often recommended as plans do routinely change.

Other Medicare Part D considerations

Potential surcharges
Perhaps you’re already aware of IRMAA—“income-related monthly adjustment amount”—which is the additional amount you may need to pay alongside your Medicare Part B premiums. However, you may not know that IRMAA can also impose surcharges on Medicare Part D as well.

This surcharge is calculated based on tax returns you reported from two years prior: meaning your 2023 income determines your IRMAA in 2025, your 2024 income determines your IRMAA in 2026, and so on.

For those unfamiliar with IRMAA, this two-year lag can result in unpleasant surprises when you first enroll in Medicare—especially if your income declines substantially after you retire. IRMAA can also creep up later in life when you begin taking RMDs (required minimum distributions), as the additional amount is reevaluated every year based on your previous two years of income. It’s therefore important to plan for Medicare a few years before you enroll.

That said, one approach to mitigating or even avoiding Medicare surcharges (for Part B or D) is to file an appeal—especially in light of a life-changing event that may qualify for IRMAA reconsideration. These include:

·      The death of a spouse

·      Marriage

·      A divorce or annulment

·      A reduction in hours worked (or complete cessation)

·      A reduction in or loss of pension income (due to a default, scheduled cessation, etc.)

·      The loss of income-producing property beyond beneficiary control (such as a disaster, theft, or similar circumstance)

·      An employer settlement payment wherein you or your spouse receives a settlement from an employer (or former employer) due to the employer’s bankruptcy or reorganization

The quickest and easiest way to file an appeal is via online filing form SSA-44 through the Social Security website, but you can also do so over the phone (800-772-1213) or by contacting your local Social Security office. Note that you should appeal only after receiving notice that your Medicare premiums for Part D include IRMAA.

More on formularies
Plans meeting specific requirements can change their formularies (medications covered under each plan) by swapping out brand-name drugs for new generic drugs and/or change the cost or coverage rules for brand-name drugs when adding new generic drugs. However, they must give you written notice of the same at least 30 days before the change becomes effective. Alternatively, at the time you request a refill, they can provide you with written notice of the change and at least one month’s supply under the same plan rules before the change goes into effect.

Keep in mind that your doctor can request a plan exception to procure a lower coinsurance or copayment for higher-tier drugs, specifically.

In sum: Medicare Part D

While Medicare Part D can help pay for your prescriptions, you can wind up paying much more than you need to if you don’t do your research and plan accordingly. This is precisely why we recommend enlisting the help of a Medicare expert or financial planner to help in this regard.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.