By Danielle Kunkle
For more than 40 years, Original Medicare did not cover retail prescription drugs. Part B covered drugs administered in the hospital or in a clinical setting but Medicare beneficiaries were on their own for drugs they filled at their local drugstore.
As you might imagine, this was devastating financially for people with health conditions that required expensive brand name medications. Sometimes people literally had to choose between food and rent or their costly medications.
Fortunately, all of that changed with the Medicare Modernization Act signed into law in 2003. It created an outpatient drug program for our nation’s Medicare beneficiaries beginning in 2006. Today tens of millions of beneficiaries use their Part D coverage to help them lower the cost of their medications every month.
Let’s take a look at how that Part D coverage works.
The Four Stages of Part D
Medicare Part D has a basic benefit structure which all insurance companies must adhere to when designing their drug plans. This includes four stages: the deductible, Initial Coverage, Coverage Gap, and Catastrophic coverage. Insurance companies can offer more than the basic benefit structure, but they cannot order less.
In 2018, the Medicare Part D deductible is $405. This is the maximum deductible that any insurance company can charge a Medicare beneficiary.
As you fill your medications, Medicare tracks your spending. Once you have satisfied your deductible, you then move into the Initial Coverage stage.
Many companies charge the full deductible up front, and often you’ll find that these plans have lower copays on their medications. Other apply a lesser deductible or waive the deductible altogether, and sometimes you’ll see higher drug copays on those plans because of this.
In the initial coverage level, you will pay a copay or coinsurance for your medications based on the plan’s drug formulary. Drugs are usually divided into 5 tiers, ranging from preferred generics all the way up to expensive specialty drugs. Each tier will have a designated amount that you will pay to share in the cost of the medication.
For example, you might find a plan that charges a $1 copay for Tier 1 preferred generics, a $10 copay for Tier 2 non-preferred generics, a $45 copay for Tier 3 preferred brands, a $95 copay for Tier 4 non-preferred brands and a 25% coinsurance for Tier 5 drugs. Generally, the more expensive the prescription is, the higher your copay or coinsurance will be. In most cases though, the insurance plan pays for the greater share.
The Coverage Gap
During your initial coverage stage, Medicare continues to track both your spending and the insurance company’s spending. Once the two amounts together reach $3750, you enter the stage known as the coverage gap, or sometimes called the Donut Hole.
When Part D first rolled out in 2006, people paid 100% of the cost of their drugs in the gap. However, subsequent legislation significantly reduced this. In 2018, you will pay only 35% of the cost of your brand name drugs, and 50% of the cost of your generics. This higher cost-share is designed to encourage Medicare beneficiaries to use generics whenever possible – to try to keep from reaching the gap in the first place.
The good news is the gap doesn’t go on forever. You see, Medicare continues to track both your spending in the gap as well as the manufacturer’s discount. When that total reaches $5000 in 2018, you will enter catastrophic coverage.
When your spending reaches the Total Out of Pocket Threshold for the year (TrOOP), you reach the last stage. In Catastrophic Coverage level, you pay 5% or less for the cost of your meds. The insurance company pays the rest. This continues through the end of the year, and then everything resets at the beginning of the next calendar year.
Choosing the right drug plan can be tricky if you aren’t familiar with how the coverage works. Your best bet is to contact a Medicare insurance broker who can help you explore the different drug plan options In your county and enroll in the one that offers you the lowest annual spending between both your monthly premiums and your medication copays throughout the year.