Even if you have a Medicare Prescription Drug plan, also known as a Part D plan or PDP, you still need to pay something. When you’re comparing plans, be aware of these out-of-pocket costs:
A monthly premium is the fee you pay to the plan in exchange for coverage. Each Medicare Prescription Drug plan has a set monthly premium. Generally, higher-premium plans will have more coverage and lower deductibles or copayments, and lower-premium plans have less coverage with higher deductibles or copayments.
An annual deductible is the amount you pay out-of-pocket for your prescription drugs before your Medicare Prescription Drug plan begins to pay. It’s a pre-set, fixed cost. Be aware that not all plans have an annual deductible.
A copayment (also known as a copay) is a kind of cost sharing. You pay a predictable, set amount for a covered drug each time you fill a prescription. The actual cost will depend on which tier your drug is in. In most situations, generic drugs will have a lower copay than brand-name drugs.
Coinsurance is another kind of cost sharing you may have. You pay a percentage of the cost for a covered drug each time you fill a prescription. Your plan pays the remaining amount owed. The percentage will vary, depending on your plan.
All Medicare Prescription Drug plans have a standard level of prescription drug coverage. This coverage is set by Medicare. However, plans differ in the specific drugs they cover and how they divide these drugs into tiers. The tiers determine what you’ll pay.
Every Medicare Part D plan has a formulary, or drug list, that shows all the brand name and prescription drugs it covers. Usually, drugs in lower tiers will cost less and drugs in higher tiers will cost more.
Below is an example of a tier structure for a typical Medicare Prescription Drug plan. The actual tier structure for the plan you choose may vary.
|Stage 1: Annual Deductible||
|Stage 2: Initial Coverage Limit||
|Stage 3: Coverage Gap (Donut Hole)||
|Stage 4: Catastrophic Coverage||
There’s a lot to weigh when it comes to comparing costs and coverage. Think of your situation while considering the following.
Plan Formulary/Drug List
Take a look at the Medicare Prescription Drug plan’s formulary (drug list) to see if the drugs you take are included.
- Do you take any high-cost, specialty prescription drugs?
- Are you willing to take a lower-cost generic alternative to a brand name prescription drug?
- How much will your drugs cost?
Pharmacy networks can offer prescription drugs at reduced rates to save you money. This is because they contract with your Medicare Prescription Drug plan. If you fill prescriptions outside the network, it may cost you more.
- If your plan includes a pharmacy network, is your regular pharmacy included?
- If not, are you willing to use a mail order pharmacy or a pharmacy chain?
If you miss your Medicare initial enrollment date and enroll later, you may have to pay a late enrollment penalty. The late enrollment premium penalty is 1% of the average monthly premium multiplied by the number of months you were late. You pay this penalty for as long as you’re enrolled in the plan.
However, if you can prove you had creditable drug coverage or qualify for the Extra Help program (see below), you may be able to avoid the penalty.
Total Out-of-Pocket Costs
Review each plan’s monthly premium, annual deductible, and copayment or coinsurance. Then ask yourself, if the costs fit within your budget.
The Extra Help program – run by the Social Security Administration – is designed for Medicare beneficiaries with limited income and resources. It’s also known as the Part D Low-Income Subsidy (LIS). This program helps cover prescription drug plan premiums, annual deductibles and copayments for people who qualify.