Original Medicare is a popular health insurance program that is generally approved of by the public, but until 2006 it had one glaring flaw: it didn’t cover prescription medications. Since prescription drug costs had been climbing for decades, there was an outcry to make changes to the system in order to help Medicare Beneficiaries pay for their medicines.
The result was Part D of Medicare. This aspect of the Medicare program launched in 2006, providing Americans on Medicare with an option to get help with their drug costs. Part D is an important part of your medical coverage in retirement. In this guide we’ll look at Medicare Part D coverage, enrollment, eligibility in 2022.
Until 2006, Original Medicare, Parts A and B, only provided coverage for prescription drugs in very limited situations, like while you were hospitalized. In other words, people on Medicare had no help paying for maintenance medications. As the number of Americans with chronic health conditions grew along with the number of medications prescribed, the financial burden became severe. Part D was created to be the solution to the problem. It hasn’t been a perfect solution, but it definitely does help with the cost of prescription drugs, especially for people who take expensive brand-name medications.
The creation of Part D authorized two kinds of plans that you can use to get help with your medicine costs:
The law that created Part D also made one other significant change: it modified the way some Medicare Supplement Insurance plans worked. Prior to 2006, some Medicare Supplement (Medigap) plans provided coverage for prescription drugs. After 2006, these plans were closed to new enrollees because the drug coverage provided by them didn’t meet the minimum coverage requirements of Part D. Since 2006, the only way to obtain drug coverage that meets the Part D requirements is from the two kinds of Part D plan. Since the mechanics of drug coverage works the same in both MAPD and standalone drug plans, we’ll discuss how standalone plans work to keep things simple. If you end up using a Medicare Advantage plan to get drug coverage, the drug portion of your plan will work exactly as it’s laid out in this guide.
Part D works similarly to Medicare Part A and Part B in the sense that you’re expected to share in the cost of your medications. You won’t get your medications fully covered under your drug plan. Instead, you’ll usually experience these kinds of costs with your drug plan:
Every standalone prescription drug plan has a monthly premium. This is the amount you’ll pay just to have coverage in place.
When it comes time to use your plan, to fill a prescription, you’ll likely have to meet an annual deductible. Most drug plans have an annual deductible; the amount is limited by law. For 2022, the maximum deductible is $480 . You’ll likely have to pay this amount in cash before your plan will start helping with the costs of your drugs. Once you’ve met the deductible, you’ll start paying co-payments or co-insurance with each prescription fill. Before we get into those details, though, we need to cover some other details of how these plans work.
Every Part D plan (both MAPD and standalone PDP) has a formal list of the medications it covers known as a Formulary. The plan will only help you pay for medications that are on the formulary. Part D drug plans are not required to cover every medication available. Instead, they’re required to cover at least two different medicines in every “therapeutic category.” So, a plan must cover at least two high blood pressure medicines, but it’s not required to cover every one on the market.
Drug Plan Formularies list and organize drugs and vaccinations into Tiers. Most plans have four or five Tiers. A Tier can be thought of as a cost level. The higher the Tier, the more expensive the medication is, both in terms of the retail cash cost and the co-payments or co-insurance you’ll have to pay under the terms of the plan. For plans with four Tiers, medications tend to be sorted like this:
If you take multiple medications, you might have prescriptions in several Tiers. Your costs for each of them would be different.
Besides drug Tier, Part D drug plans contain one other variable that can impact the price you pay for medicines: Coverage Stages. Part D plans have four Coverage Stages that govern how much you pay for your medications. You move from one stage to another as you and your plan pay for your medications. When total spending on your drugs reaches certain milestones during the year you move from one stage to another.
In this stage, you’ll pay full cash costs for your medicines until you’ve reached the deductible.
Once you’ve met your plan’s deductible, you’ll be in stage two. In this Coverage Stage, you’ll pay a fixed co-payment or co-insurance for each of your medications. Your drug plan picks up the rest of the cost. This is the coverage stage that most people stay in during the year. However, for 2022, if your total drug spending, which is what you pay plus what your drug plan pays, exceeds $4,430, y ou’ll move into the next stage.
In this stage, you’ll pay a fixed 25% of cost for your medications, both generic and brand-name. This is usually more than you’d pay for these medications in stage two. Medicare will pay the remaining 75% of the cost for your generic medications.
For brand-name medications, the remaining 75% of cost is paid in this manner:
You’ll continue paying 25% per prescription fill until your total costs exceed $7,050, t hen you’ll move on to stage four. One thing to note about this is that your total costs include both what you actually pay out of pocket and the value of your manufacturer discounts. By including the value of your discounts, you’ll be able to move out of this stage much quicker.
If you reach this stage, your costs for the rest of the year are very limited. You’ll pay no more than a small co-payment or 5% of drug cost, whichever is higher. There is no cap on your out of pocket spending on medications. When the calendar year is over, you start the process over again and you’ll be in Coverage Stage 1 on January 1st.
In order to keep your drug costs as low as possible, you’ll want to bear a few things in mind. The first is that if you use medications that aren’t on your Formulary, not only will you have to pay full price, but the amounts you pay don’t count towards any of the Coverage Stages. This can be a real problem if you’re trying to get out of the Coverage Gap (Stage 3). To avoid this, make sure to only use medications that are on your plan’s Formulary. Because of this, it’s very important to look for a plan that covers any medications you take.
A second thing to consider is that if you’re prescribed medication in the middle of the year that’s not on your plan’s Formulary, you can ask them to make an exception. When you file a Formulary Exception, your doctor will be required to state a medical reason for why you need the non-Formulary exception. In this case, your plan may approve the request, or ask that you try other, less expensive, medications first. They might also deny it.
The simple answer is that if you’re eligible for Medicare, you’re eligible for a Part D drug plan. There is actually one small difference between standalone drug plans and MAPD plans when it comes to eligibility:
You will be able to enroll in a Part D drug plan during your initial Medicare eligibility period. For the majority of people this happens at age 65. You’ll be able to enroll in Medicare Part A and B during a seven month enrollment window that begins three months before the month in which you turn 65. The window closes at the end of the third month after the month you turn 65.
You can enroll in Parts A and B at any time during this window; once you do so, you can also sign up for your Part D drug plan. You must enroll in your drug plan no later than the end of the third month after your birth month.
It is possible to delay your entry into Medicare, and your need for a drug plan in many cases, beyond age 65. This is becoming increasingly common since the Social Security Full Retirement Age is now at least 66 for most people. If you continue working past age 65, you can delay your Medicare benefits if you have qualifying employer coverage. Generally, your employer must employ at least 20 people in order for the coverage to qualify.
If you are able to delay taking your Medicare benefits, you’ll be able to enroll whenever your employer coverage ends, during a Special Enrollment Period (SEP) that lasts for eight months.
It is also possible for you to get Part D drug coverage before traditional Medicare age if you qualify to enter early. You can enter Part A and B before age 65 in these cases:
When you enter Medicare early because of these situations you’ll also have the opportunity to get a drug plan, either a standalone plan or an MAPD.
There are a few situations in which you may not need to enroll in a prescription drug plan. We’ve already mentioned the case where you continue working and remain covered by your employer plan, but you may not need a Part D drug plan if you have any of these coverages:
Note that it’s possible that these coverages may not meet the Medicare guidelines of “qualifying coverage,” so if you’re thinking about skipping a Part D plan, make sure to check with your benefits provider to see if your coverage will meet the requirements.
If you don’t enroll in a Part D plan when you’re first eligible, you’ll end up paying a late enrollment penalty if you do end up enrolling in one down the road.
The Part D late enrollment penalty is calculated as 1% of the National Base Beneficiary Premium (you can think of it as the average premium for the minimum benefits required by Part D) for each month that your enrollment is late.
For 2022, the base premium is $33.37. If you waited three years to get Part D drug coverage, your penalty would be:
x 1% x 36 months = $12.01
You would pay this penalty amount in addition to your monthly premium. The penalty is permanent, so you’d end up paying it for as long as you had Part D coverage. Since the penalty is permanent, you’ll end up paying hundreds if not thousands of dollars more than if you had enrolled on time.
Now that you have an overview of Medicare Part D coverage, enrollment, eligibility in 2022, you can figure out what the right plan will be for you when you enter Medicare. Circumstances change, though, so you may need to change plans in the future. This could happen because you’re prescribed new medications, or because the costs of your initial plan increase. Either way, you’ll have the chance to change your Part D plan every year during the Medicare Annual Election Period (AEP).
AEP begins on October 15 and ends on December 7th each year. During this enrollment period, you can make a number of changes to your Medicare coverage, including:
If you choose to make a change in coverage, your new plan will be effective on January 1st. Whether enrolling in your first drug plan, or making a change during AEP, you should make sure to find a plan that covers all of your medications.
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