What is Medicare Part D?
Medicare Part D was passed into law in 2003, implemented in 2005 and has been offering prescription drug benefits to enrollees since January 1, 2006. While this program has helped millions of Medicare beneficiaries with the high cost of needed medications, it remains complicated and, in many cases, still costly. We will discuss the many moving parts of this program and the annual changes which are important to be aware.
Enrollment eligibility for Part D occurs once a new Medicare beneficiary is entitled to Part A and or enrolled in Part B. This normally occurs on the first day of the month in which a beneficiary turns age sixty-five. At this point the clock starts ticking and the beneficiary will have sixty-three days to enroll into a Part D plan. The exception is if the beneficiary will continue to receive credible coverage as defined by Centers for Medicare and Medicaid Services (CMS) through an employer plan, the Veterans Administration or another plan deemed credible. If not, then after sixty-three days the beneficiary will begin to incur a penalty. Employees should check with the Human Resource department to confirm their group health plan is considered credible by CMS.
This penalty is called the Late Enrollment Penalty (LEP). The calculation is for every month a beneficiary goes without credible coverage; they will incur a penalty equal to 1% of the national average monthly premium for Part D plans. This may be about thirty-five cents per month currently which may not seem like much however, it is a lifetime penalty that is paid monthly in addition to your Part D or Medicare Advantage premium. For example, if you incurred a penalty for twelve months that would be approximately $4.20 per month. If you incurred a penalty for five years that would be $21.00 per month, lifetime. Just so you know COBRA is not considered credible coverage. Fear not! The government has a heart and those who live on low income may not have to pay a penalty.
Low Income Subsidy (LIS) is available for those who live below certain income levels based on the Federal Poverty Index. This is very important as we know many of our seniors on fixed income are living in poverty. Many do not take advantage of this subsidy either because of pride or because they are unaware. This is an area where advocates can play a big role in helping people get needed services. If someone applies and is qualified to receive a LIS they will not have to pay the Late Enrollment Penalty. This is also true for individuals who qualify for Medicaid in addition to Medicare. In addition, people who qualify, will pay lower drug costs and the amount will be determined on an income adjusted basis.
Part D covers prescription drugs, biologics, insulin and many of the supplies related to insulin use, and certain vaccines. Part D does not cover vitamins, over the counter drugs, weight loss, fertility, cosmetic, symptomatic relief of cough and colds, or drugs which are covered by Parts A & B. CMS determines the therapeutic categories which must be covered, and all plans must have a minimum of two drugs in each therapeutic category. Plans must carry both generic and brand-name drugs.
All Part D plans will have a formulary which is simply a list of the medications covered by the plan. These formularies are segregated by tiers. All plans will have a minimum of four tiers; Tier 1 is preferred generics, Tier 2 non-preferred generics, Tier 3 preferred brand name, Tier 4 non-preferred brand name. Most have additional tier levels for specialty drugs, possibly chronic drugs, some for insulin, etc. These plan formularies will differ from plan to plan and from year to year.
Effective January 1, 2020 there are thirty-two different Part D prescription drug plans available. Monthly premiums range from $12.80 up to $118.40. Plan deductibles can range from zero up to $435. Deductibles, co-payments, co-insurance and formularies will vary from plan to plan. It is important to verify medications with available plans every year to determine the best fit for an individual beneficiary. Spouses do not need to be on the same plan, in fact it may be better to be on different plans.
In my experience, the prescription drug costs can sometimes be the most expensive part of health care for Medicare beneficiaries. Part D plans have cost stages which can be very confusing. The following will describe the different stages and what can be expected in terms of costs to Part D beneficiaries.
The first stage is the deductible. As stated above these can vary from zero to $435 depending on the plan. If a plan has no deductible, then the beneficiary will go right to co-payments and co-insurance. Plans with deductibles will require that amount to be met by the beneficiary before co-payments and co-insurance begins. Many plans with deductibles only apply them to higher tier drugs. For example, Tier 1 or Tier 2 drugs may go straight to co-payments while Tier 3 and above usually require deductibles be met first.
Once the deductible is met, the initial coverage stage begins (Yes, I know the deductible should be the initial stage. This language is from CMS not me). During this period, a beneficiary will be responsible for co-payments and or co-insurance. Co-payments are a specific dollar amount for a drug while co-insurance is a percentage of the cost of the drug. Lower tier drugs usually have co-payments while higher tier drugs have co-insurance. During this stage a beneficiary can expect to pay approximately 25% of the drug cost between the $435 deductible and the donut hole. This 25% will be approximately $900 out of pocket cost to the beneficiary. The donut hole is reached when the total cost spent on drugs from the insurer, any subsidy programs and the beneficiary total $4,020. Many beneficiaries do not reach this level but those that do have just entered the donut hole or coverage gap.
While in the donut hole a beneficiary will pay 25% of both brand name and generic drugs. Drug manufacturers pay 70% of the cost of the drug. This 70% is attributed to the beneficiary out of pocket costs, even though beneficiaries do not pay it. Once the beneficiary’s 25% out of pocket costs and the manufacturer 70% reach $6,350, then we move into the catastrophic stage.
In the catastrophic stage the beneficiary will pay a co-payment of $3.60 for generic and $8.95 for brand name drugs or 5% whoever is greater. People who qualify for LIS or for Medicaid will not be on the same schedule and should verify what their share of cost will be. In many cases but not all, people on a LIS will only pay the co-payments of $3.60 for generics and $8.95 for brand names from day one on the plan. Clear as mud.
The above describes the Standard Benefit required by CMS for plan year 2020 which Part D insurance carriers must follow. Plan benefits frequently vary but, in all cases must be at least the same or greater as the standard benefit.
There are so many moving parts of Part D plans that I cannot cover them all in the scope of this column however, the following are some additional highlights to be aware. Plans will have network or preferred pharmacies with lower costs to beneficiaries. Out of network pharmacies will likely cost more. Prior authorization is required for certain drugs. Your doctors’ office will have forms to complete and make this request. Quantity limitations will apply to certain classes of drugs such as opioids and other narcotics. Drugs not on your plans’ formulary can be requested as a formulary exception.
Step therapy may be required for higher tier drugs. In this case the plan requires you to use lower cost drugs first before approving more expensive alternatives. Your doctor’s office may request an exception if he or she feels there is a viable reason for doing so.
Remember that if you have a Medicare Supplement or Gap plan then you will need a Part D drug plan. If you choose to enroll in a Medicare Advantage plan (in San Joaquin county) then you will have drug coverage built into your plan and will not need a stand-alone drug plan. In fact, you are not able to be enrolled in a Medicare Advantage plan and a Part D drug plan at the same time.
As always, I advise you to consult with your team of professionals to help make important decisions. Here are a few of the many resources available: MediCare.gov, Hicap.org. Until we talk again be well.