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Understanding Medicare drug plans

Knowing that your doctors’ bills and hospital costs are covered by health insurance is comforting, but those enrolling in Medicare must also find the right prescription plan. That could mean pairing an Original Medicare plan (Parts A & B) or buying a Medicare Advantage plan with prescription drug coverage. 

A person becomes eligible for Medicare at age 65 unless the person has been receiving disability and social security payments. The initial enrollment period (IEP) is seven months in length. It begins three months before the enrollee's birth month, goes through the month of his 65th birthday, then continues for three months. Enrollment may be completed anytime within that window.

"If you enroll before your birthday month begins, coverage starts on the first day of your birthday month," says Kent Monical, senior vice president of Part D and Product Strategy with United Healthcare Medicare and Retirement. "If you enroll during your birthday month or later, coverage starts on the first day of the month following the date you enroll."

If that window is missed, however, the enrollee must wait until the following annual enrollment period to get on the Medicare bandwagon. Open enrollment begins in October each year and lasts into early December. Open enrollment for 2019 coverage is now over, for 2020 coverage open enrollment will run from Oct. 15 to Dec. 7, 2019. The only exception is if you have a qualifying life event that would allow you to make changes to your Medicare coverage. That could be because your spouse dies, you move or you or your spouse change jobs. 

Medicare coverage components are labeled Parts A, B, C and D. Part A refers to hospital coverage, Part B pertains to doctor coverage.  These two parts can be referred to as Original (or traditional) Medicare and are managed by the federal government. 

Part C is Medicare Advantage, in which a private insurance company becomes involved in covering the costs. Part D is for prescription drug coverage. Those who have original Medicare must make sure they add Part D coverage to their plan so prescription drugs will be covered.

"Original Medicare (Parts A and B) does not cover most prescription drugs," says Monical. "Part D plan enrollment is optional."

Major Components of Medicare Coverage
Part AHospital insurance - Covers inpatient hospital, hospice care, skilled nursing facility and some home healthcare.
Part BMedical insurance - Covers outpatient care, doctor's visits, preventive services and medical supplies.
Part CMedicare Advantage plans - Instead of purchasing Part A and Part B, you can buy a Medicare health plan offered by a private company that will provide you with all of your Part A and B benefits.  Most Medicare Advantage plans offer prescription drug coverage.
Part DPrescription drug plans - Adds prescription drug coverage to your Original Medicare plan. These plans are offered by insurance companies and private companies approved by Medicare.  

Seek expert advice on Medicare prescription plans

It's a good idea to get expert advice. Medicare includes so many moving parts and potential pitfalls and it's always changing. Many companies offer independent consulting services to help consumers understand Medicare coverage. Exercise caution if you’re using a broker. Since the broker may benefit financially from your purchase, the person may not always have your best interest in mind.

Each U.S. state also operates a State Health Insurance Program (SHIP), which features a hotline through which Medicare customers, both potential and current, can seek advice. Through phone interviews, counselors will help compare various government-sponsored and private plans at no charge.

The premium is not necessarily the bottom line. One plan may show a monthly premium of $45 and have excellent drug coverage, while another might have a better-on-the-surface $18 premium, but end up costing the consumer thousands annually in drug costs. It all depends upon the person's individual need. A phone counselor can help sort out the particulars.

Monical said consumers should take time to research and examine the details of a plan to see if it fits their needs. Aside from the monthly premium, he recommends consumers should compare deductibles, copays and coinsurance. High deductible plans will cost you little in way of premiums, but could result in large out-of-pocket costs. 

A plan with low premiums and high deductibles can work if you're completely healthy and don't expect to need many healthcare services over the next year. But remember that we never really know what our health will look like. We can start a year healthy and wind up in the hospital. Keep that in mind when choosing a plan. 

Also, check to see that your medications are covered. 

"Make sure the medications you take are included on the formulary, or approved drug list, without a prior authorization or step therapy requirement," advises Monical. You may have to pay out-of-pockets costs if medications are not on the list. If your drugs are not listed but you like the other components of the plan, see if the same drug is offered under a different name.

Monical also recommends checking to see which pharmacies work within your provider's network. "Some plans have preferred pharmacy networks," he says. "By visiting preferred pharmacies, members can typically access drugs at the lowest cost. Other plans may offer a mail-order option, which may reduce copay costs and make it more convenient for beneficiaries to receive their drugs."

Medicare enrollees can visit Medicare.gov to compare plans and review star ratings of different options. Among those options is Medicare Advantage, which is part of the Medicare system that is administered by a private insurance company, and may include drug coverage. Original Medicare pays 80 percent of costs, leaving the enrollee with 20 percent to pay out-of-pocket. Gap coverage can help pay those leftover out-of-pocket costs, which can mount quickly when it comes to prescriptions.

Medicare users who are happy with their existing coverage do not need to do anything during subsequent enrollment periods. However, if needs change, it’s wise to examine new options to look for cost savings and more appropriate coverage.

Medicare drug plan costs remain relatively steady

Medicare costs vary each year. The average Medicare Part D premium is $32.50 in 2019. 

The exact cost depends on multiple factors, including:

  • Your prescriptions
  • The plan you choose
  • Whether you go to pharmacy in your network
  • When you use the plan's formulary

If you meet certain resource and income limits, you may be eligible for help to pay the costs of a Medicare drug plan. Currently, you may qualify if have an annual income of $18,090 or less and not more than $13,820 in resources. For married couples, those limits are an income of less than $24,360 and resources less than $27,600.

When comparing plans, costs go up proportionally with the number of options offered within the plan. It is important to choose a plan that suits your needs.

Navigating the Medicare coverage gap

Most Medicare drug plans contain a coverage gap that occurs when the drug plan plus the enrollee have reached a provisional limit on covered prescription drugs. It's called the donut hole. 

While in the donut hole, Medicare enrollees pay a larger part of drug costs. In 2019, your initial coverage limit is $3,820. The donut hole is $3,820 to $5,100. 

Catastrophic coverage will kick in once you've spent $5,100 out of pocket on drugs for the year.  At that point, you pay a small coinsurance amount or copayment for covered drugs (5 percent of the cost of drugs) for the rest of the year. 

Part D enrollees get a 75 percent donut hole discount on brand-name drugs purchased when in the donut home. You also get up to 37 percent donut hole charge on generic drugs. 

The donut hole goes away in 2020, so you only need to deal with it for one more year. 

Plan ahead for future health

It is wise to purchase a drug plan when you initially sign up for Medicare. If you enroll late for Part D coverage, a penalty will be added to your Part D monthly premium.  If you go without Part D or a creditable prescription drug plan for a period of 63 days or more after your initial enrollment period is over, you can be charged a late fee penalty when you do then add a Medicare drug plan. The penalty will continue for as long as you have a drug plan.

Many new enrollees chose not to include drug coverage because they take few or no medications. However, if a condition develops rapidly outside of the enrollment window, the enrollee could find himself quickly amassing out-of-pocket bills. Industry experts agree it is best to have basic drug coverage at minimum.

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