Finding Value in Medicare Part D Plans
Persons who enroll in a Medicare Supplemental plan and wish to have prescription coverage, must also enroll in a separate stand-alone Medicare Part D Plan (Medicare drug plan).
FYI, there is no U.S. government Medicare Part D official drug plan. Part D is simply a government term for private insurance companies’ authorized Medicare prescription insurance coverage plans. The insurers file plans with each state separately, so PA plans are not necessarily the same deal/cost structure as NJ plans.
For Year 2023, PA residents have 26 possible Part D plan options, while NJ residents have 24 possible plan options. To truly understand which of these plans might be right for you, a prescription review is suggested. Choosing a wrong fit plan can easily cost you several hundred dollars to one-thousand dollars or more annually in wasteful spending.
Big Picture: For prescription coverage, Medicare Part D plans can be a little stingy — often less generous than our employer group health drug coverage or our individual under age 65 drug coverage. If we use all generics, or mostly generics….we will find the coverage reasonable. If luck has it that we need to use a few name-brand drugs, particularly the name-brand drugs advertised on television or some new amazing biotech drug, we will find Part D coverage less generous than our previous insurance.
John Barbati says “Have a headache already? Me, too…and I’ve been doing this full-time for fourteen years. How about this…Skim read the information below, and when you are ready, contact us. We will do the review for you and educate you on plan choices, how to find strong value for your needs, etc. You don’t need to reinvent the wheel here. We’ve done several thousand reviews for clients, at no charge, and keep a large bottle of aspirin handy. We are happy to mail/email our clients a customized prescription plan analysis drawn from the website: www.medicare.gov. This analysis will show your specific total expected costs — monthly premiums, co-pays and deductibles. Our goal is to deliver value here – to save you money and eliminate surprises.”
<Q: How do co-pays on Medicare Prescription Drug Plans Work?
Each Part D plan has a different monthly insurance premium price and a distinct formulary – a list of covered prescriptions. Prescriptions listed in the formulary are then assigned a Tier level (copay level): Tier1, Tier2, Tier3, Tier 4, and Tier 5. With most plans, Tier 1 and Tier 2 will consist of generic drugs. Tiers 3, 4, and 5 tend to be name-brand drugs, but these tiers will also include some more expensive generic drugs considered “non-preferred.” Each Tier then has a fixed copay per fill or sometimes a percentage coinsurance due per fill (percent of the retail price you will pay).
Medicare Part D prescriptions drug plans are generally divided into four co-payment sections:
- Deductible Phase;
- Initial Coverage Phase;
- Coverage Gap (a/k/a “donut hole”) Phase;
- Post-Coverage Gap Catastrophic Coverage Phase.
Q: How does the Deductible Phase work?
The majority of Part D plans (but not all plans) will have a calendar-year deductible, generally applicable to name-brand drugs and non-preferred drugs. This deductible is often (but not always) $505.
For most plans, this means that if you have a prescription for a name-brand drug or a non-preferred drug, then you pay cash retail price for the first $505 as you fill. Ouch! But once you’ve met that $505 deductible, you then have fixed copays in the Initial Coverage Phase. For most plans, the majority of generic drugs are not subject to the deductible at all. This means, that with most generic drugs, you don’t have to pay the $505 deductible before receiving a low copay..
But…life is full of exceptions to the rule, so why not Part D plans, too? Some Part D plans don’t have any deductible, but with these plans, we may find the monthly cost of the insurance is too high. Other Part D plans have a deductible less than $505, but maybe the copays are too high.
Confusing? – You bet! After fifteen years of doing this, the system still drives us crazy! To cut through the confusion, we generally run prescription copay and plan analyses for our clients, using the plan finder software at www.medicare.gov
There is no charge for our review and the using the software for reviews is the only way we can help our clients save money!
Q: How does the Initial Coverage Phase work?
A: The Initial Coverage Phase of a Medicare Part D Prescription coverage consists of a series of co-payments due per prescription. The co-payments vary based on the prescription’s tier level (described above) — whether the prescription is considered a generic; a favored-brand name prescription (where the insurer receives favorable pricing from the drug company); or a name-brand, but higher priced prescription, etc. . Remember that many plans will also have a Deductible Phase, also described above.
Medicare Part D prescription plans will cover prescriptions in the Initial Coverage Phase up until annual costs reach $4,660 in 2023, at which point the coverage gap known as the “donut hole” begins. The $4,660 number here will include any money you spent in the Deductible Phase, all copays you paid in the Initial Coverage Phase, and the dollar amount that the Part D insurance company has paid alongside you your prescriptions. If the sum of these numbers reached $4,660, during 2023, into the Coverage Gap/Donut hole you go.
Q: How do the Coverage Gap/Donut hole concepts work?
A: During 2023, when the sum of prescription drug co-pays you’ve paid, plus what the insurer has paid to cover the remaining costs of your prescriptions reaches $4,660, the Coverage Gap phase known as the Donut Hole begins. At this point, you will see a copay increase . You will pay 25% of “retail cash price” for name-brand prescriptions and an approximately 25% of “retail cash price” for generic prescriptions.
You will continue to pay these prices until you are credited with having spent $7,400 out-of-pocket (deductible and all copays) during 2023. To soften this $7,400 number…you will be credited nearly $3 for every $1 spent on nearly all name-brand prescriptions, and $1.75 for every $1.00 spent on generics.
This crediting allowance means you would not be spending the entire $2,740 ($7,400 minus $4,660) while in the coverage gap. To simplify some convoluted math, we like to tell people that one probably needs to spend about $685 in copays to exit this coverage gap/donut hole level.
What generally happens to most people in this Coverage Gap is that the year ends, and the whole ridiculous game resets in January. However, once a person has spent the approximate $685 in the doughnut hole, and if the year has not ended, then this person go to the next coverage section…called Catastrophic Coverage Phase.
Note: The key driver of what pushes us toward the Coverage Gap is the use of name-brand prescriptions, Name-brand prescriptions have a higher underlying true retail cost than generic prescriptions. This means the use of name-brand prescriptions can drive one toward the Coverage Gap more quickly than generic prescription use. We fully understand than most persons will opt for generic prescriptions when available, but there are many prescriptions which are available in name-brand only.
Q: What is Catastrophic Coverage?
A: During 2023, after a person who has been in the Coverage Gap has been credited for a total of $7,400 in calendar year out-of-pocket prescription costs, the Catastrophic Coverage Phase begins. For persons who use expensive name-brand drugs, and have been hit hard with copays in the Coverage gap, Catastrophic Coverage is designed to help save money, to lower the copays due. For name-brand prescriptions co-pays here are $10.35 or 5% of cost, whichever is higher. For generic prescriptions, the copay would be $4.15 per or 5% of cost per generic prescription filled, whichever is higher.
Q: Does everybody who enters the Coverage Gap area also enter the post-coverage gap Catastrophic Coverage area?
A: No. Most persons who enter the Coverage Gap area will finish the year in this area as their credited out-of-pocket costs did not reach the required $7,400. For example, assume Mr. Jones reaches the Coverage Gap in October 2023, then pays 25% of retail cost as copay for name-brand drugs. He pays this 25% of retail cost during November and December. By year-end, he hasn’t paid the approximate $685 in Coverage Gap copays required to exit the Coverage Gap and move to Catastrophic Coverage. The year ends. At January 1 2024, with the new year, the coverage resets back to the initial coverage area and the process plays out again.
Q: Is this system overly-complicated?
A: Yes… but we work with Medicare plans full-time and our job is to navigate this for your specific needs. There are no charges to you for our services, nor any extra charges to you from the Part D plans because you are working with a broker.
We are very good brokers and have completed several thousand Part D reviews for clients. We conduct a custom, initial drug review for all of our new clients as well as annual reviews during the Open Enrollment Period that runs from October 15 – December 7 each year.
“When I became eligible for Medicare last year, I was taken aback by the many options and solicitations for Medicare Supplemental and Rx policies. Undaunted, I said: ‘Let an expert do my homework for me!’ John was wonderful in finding and explaining the right plans for my peace of mind and budget. I don’t snore as loudly now.”
– Gundars R., New Hope, PA