Medicare Part D Simplified:
Medicare Part D Plans are Medicare regulated private insurance drug plans that give you lower cost on prescriptions. Once you enroll in a Medicare Part D plan in your state, you will now pay a set copay instead of the full cost of the prescription drug.
The average Part D premium in 2020 is $34/month and the standard deductible is $435 per year. All plans have a list of covered drugs called a formulary and use a tier system to price and classify drugs. For this reason it is important to shop your Part D plan with to make sure you select the one that covers your prescriptions and at the lowest cost to you. While Part D is voluntary, we highly recommend choosing a Part D plan to avoid penalties
Medicare Part D In depth:
Medicare Part D seems fairly simple when you first look at it. Medicare Part D covers your prescription drugs coverage to lower your out of pocket costs. But, because every plan will cover different drugs at different costs, it becomes a more complex to find the plan that fits your needs at the lowest cost.
How Much Does Medicare Part A Cost?
There are a few different costs associated with Part D. Below we have broken down the main costs associated with Part D.
Medicare Part D Premium:
The first is the month premium, or cost you pay to have a Part D plan. The monthly premium varies greatly from around $15 all the way to $150 depending on your state and plans offered in your state with the average coming in around $33 in 2020. There often can be 20+ options available to you with varying premiums and coverage for prescriptions, so it's important to sit down with an agent and make sure you get the right option that fits your budget and needs.
Medicare Part D Deductible:
The Center for Medicare and Medicaid Services (CMS) sets the minimum guidelines for every Part D plan each year that all private insurance companies that offer Medicare Part D plans must follow. All drug plans have 4 stages or coverage levels, and Medicare sets the threshold for each level each year.
The first level is the Medicare Part D deductible, in 2020, this deductible is $435. This means that you must pay up to $435 BEFORE your Part D will begin to pay. No can can charge a higher deductible, but they can choose to charge a lower deductible.
In general, a plan who charges the full $435 will have lower premiums and out of pocket costs for prescriptions. A plan who charges no deductible will have higher premiums and high out of pockets costs.
Medicare Part D Copays
The next cost of Medicare Part D plans brings us into the next coverage level, the initial coverage level. All part D plans have a formulary, or list of covered drugs. In this list of covered drugs, each part D plan is required to cover at least 2 drugs from each therapeutic category and classify each of the drugs in a tiered system. This will usually be a 5 tier system with Tier 1 being preferred generic medication, Tier 2 non-preferred generic, Tier 3 preferred brand name… and ect. For each tier the Part D plan assigns a set copay or coinsurance for that tier.
Tier Copay Example
- Preferred Generic: $3
- Generic : $10
- Brand Name: $45
- Non-preferred brand name: $100
- Specialty: 33%
Each plan has a different list of covered drugs, different copays, and different tiers so you want to really shop your Part D plan before enrolling. Do your homework each year to ensure you get the lowest out of pocket costs.
Medicare Part D Donut Hole and Catastrophic coverage.
After the initial coverage level we head into the coverage gap or “donut hole.” During the donut hole you will pay 25% of the cost of the prescriptions until your out of pocket costs reach $6350 in 2020. Once you reach that threshold, you will enter the final coverage level, Catastrophic coverage. During Catastrophic coverage you will pay a small copay or 5% of the cost of the drugs, whichever is less.
For more information on the donut hole, see our post on the Medicare Donut Hole
How and When to Enroll in Part D?
Your first opportunity to enroll in a Part D plan will be during your Initial Enrollment Period when you first turn 65. This 7 month period runs 3 months before, the month of, and 3 months after the month you turn 65. If you miss this period you will need to wait until the Annual Election Period that runs from October 15 to December 7 of each year. During this time you can choose and enroll into a Part D plan or MAPD plan for a January 1st effective date for the upcoming year.
There are Special Enrollment Periods (SEP) that do allow you to enroll into a Part D plan throughout the year when you would normally be locked into your plan. You can think of the SEP’s as “life changing events” such as moving out of state or losing your group employer coverage.
For more information on these enrollment periods, read our article on Enrollment Periods .
What Happens If I Don’t Enroll in Part D When I am First Eligible?
Keep in mind, Medicare Part D is voluntary so you do not have to enroll. If you decide not to or forget to enroll in a Part D plan during your Medicare Initial Enrollment Period, you will have to wait for the next Annual Election Period to enroll for the following first of the year. So not only would you have to wait for coverage, you will also be assessed a late enrollment penalty when you do enroll. The only exception to this is if you had other creditable drug coverage, such as group employer coverage or VA benefits. This Late Enrollment Penalty accrues over time, sticks with you for life, and gets added to your monthly premium.
The Medicare Part D Late Enrollment Penalty
Medicare calculates the penalty by multiplying 1% of the "national base beneficiary premium" ($32.74 in 2020) times the number of full, uncovered months you didn't have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium.
The national base beneficiary premium may change each year, so your penalty amount may also change each year.
Seriously consider these consequences before you decide on whether or not to take part D. You risk no coverage and a lifelong penalty for not taking Part D.
Get Someone on Your Side with Part D
We provide FREE assistance to our new Medicare clients by analyzing their Medicare Part D drug plan needs and budget. This assistance is limited to our Medigap policyholders ONLY. No need to worry if you already have a Medigap plan. Many people we speak to are overpaying for their Medigap plans so we can help you shop for a better rate.