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. Part D is simply a Medicare term for private insurance companies’ authorized Medicare prescription insurance coverage plans.
For 2024, PA and NJ residents have access to 21 possible Part D plans. To 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 or more annually in wasteful spending.
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 formularies are then assigned a Tier level (copay level): Tier 1, Tier 2, 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 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 three co-payment sections:
- Deductible Phase;
- Initial Coverage Phase;
- Coverage Gap (a/k/a “donut hole”) Phase.
Q: How does the Deductible Phase work?
Most 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) $545.
For most plans, this means that if you have a prescription for a name-brand drug or a non-preferred drug, then you pay the cash retail price for the first $545 as you fill. Ouch! But once you’ve met that $545 deductible, you then will have fixed copays or percentage coinsurances in the Initial Coverage Phase. For most plans, generic drugs are usually not subject to the deductible.
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 $545, but maybe the copays are too high.
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 or coinsurances (percentage of retail cost) 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; 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 $5,030 in 2024, at which point the coverage gap known as the “donut hole” begins. The $5,030 number here will include any money you have 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 for your prescriptions. If the sum of these numbers reaches $5,030 during 2024, then into the Coverage Gap/Donut hole you go.
Q: How do the Coverage Gap/Donut hole concepts work?
A: During 2024, 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 $5,030, then 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.
You will continue to pay these prices until you are credited with having spent $8,000 out-of-pocket (deductible and all copays) during 2024. To soften this $8,000 number…you will be credited nearly $3 for every $1 spent on name-brand covered prescriptions. For generics, you will be credited dollar for dollar – one dollar credit for every dollar spent.
Beginning in 2024, once you have reached the credited $8,000….then you will no longer pay any prescription copays for the remainder of the year, for all covered prescriptions.
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. Most people will opt for generic prescriptions when available, but there are many prescriptions which are available in name-brand only.
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.
For all our clients, we will work to help you establish your Medicare portal at www.medicare.gov. Takes five minutes to set up. Here we will ask you to enter your prescriptions in a software program there. The program will remember your prescriptions in coming years, making any end-of-year analysis very easy to do.
“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