It’s no secret that prescription drugs are expensive and that the United States incurs some of the largest pharmaceutical spending in the world. It’s estimated that US consumers spend upwards of $500 billion each year on drug costs.

For many years, retirees bore the brunt of these costs as Medicare didn’t have a prescription drug benefit. But with the central role prescriptions play in many people’s treatment, recovery, and ongoing health needs, Congress added this coverage in 2006 known as Medicare Part D. 

Part D plays a critical role in your Medicare coverage, so it’s vital to select a plan that meets your needs. Today, we are going to answer the top questions about Part D to help you understand how it works and ways to select the right coverage for you.  

1. What is Medicare Part D and what does it cover?

Part D is a type of insurance that covers outpatient prescription drugs. The type of prescriptions it covers and its corresponding costs depend on the plan you choose. You can obtain coverage in a couple of ways:

• Purchase stand-alone converge.
• Enroll in an Advantage plan with built-in Part D coverage.

Numerous insurance companies offer stand-alone Part D coverage, but the top three are CVS Health, United Health, and Humana, which cover nearly 60% of participants, according to the Kaiser Family Foundation (KFF). 

The KFF also found that stand-alone enrollment is on the decline for the first time since Part D entered the marketplace. They found that people favor Advantage plans for their all-in-one solution. Be sure you do your research before enrolling because you want to find a provider that covers your medications at a reasonable price.

Part D covers most prescriptions including name brand, but likely generic drugs will be more affordable for consumers. Most injectables aren’t covered in the Part D realm, but some self-injectables such as insulin are.

Over the counter medications like painkillers or cold remedies aren’t covered by Part D; those expenses come out of pocket. Should you have a health savings account (HSA), you could use those funds to foot the bill for some over the counter medications and other ancillary costs like copays or deductibles. 

2. How much does Part D cost?

As with any insurance coverage, there are many out-of-pocket costs to understand. Each plan’s cost-sharing responsibilities will differ depending on the provider and how many different prescriptions you take throughout the year. Someone who only takes one medicine, for example, will likely pay less than another person who needs three. That, of course, depends on the type of prescription, as the cost for each drug varies. Remember, your costs will fluctuate depending on the provider and plan details, but below are some costs you can expect. 

• Premium. Most Part D plans carry a monthly premium. The average cost for 2020 is $32.74, according to the Centers for Medicare and Medicaid Services (CMS). This number is just the average for the basic Part D premium. Costs can vary widely depending on the plan and the medication you need.

• Deductible. Part D providers have the option to set an annual deductible. The price is regulated by the federal government, and in 2020 can’t exceed $435. A deductible means that you are responsible for the entire cost of your prescriptions up to that threshold; only after you meet the deductible will the insurance kick in. 

• Copay. A copay is a flat fee you pay for each drug. Say, for example, each time you go to the pharmacy for a refill you pay $15. 

• Coinsurance. Coinsurance is a percentage of the drug cost. In this example, you would pay 10% of the total drug cost, which can shift depending on the medication. Most plans either issue a copay or coinsurance.  

3. What is the Part D donut hole?

The donut hole is perhaps the most confusing aspect of Part D. It marks a temporary gap in your coverage, issuing a limit on how much your provider will pay for prescriptions.

Entering this stage depends on the total cost both you and your provider paid for prescriptions throughout the year. Keep in mind, the amount is subject to change each year. In 2020, once you have collectively (both you and your provider) spent $4,020, the coverage gap begins. 

In the donut hole, you are responsible for paying 25% of your drug costs until you reach an out-of-pocket maximum of $6,350, then you won’t pay more than 5% of your drug costs for the rest of the year. There is a bit of a catch. 

Remember, the $4,020 that both you and your provider needed to hit before entering the coverage gap? That number represents the total cost between both parties, but the $6,350 gap looks at your spending alone, outside the insurance company. What does this mean for you?

Say in 2020, you spent $1,500 on medication and your provider spent $2,520 totaling the $4,020 that put you in the donut hole. You have to spend at least $4,850 before getting out of the coverage gap because the spending limit only looks at your contributions, not the insurance company. 

4. How can you enroll in a plan?

The first time you can enroll in Part D is during your initial enrollment period. This seven-month period marks your entrance into Medicare and it’s best to sign up for a plan during that time to avoid any penalties. Should you not enroll at the proper time, you could incur a lifetime penalty. The late enrollment penalty is 1% of the national base premium multiplied by the number of uncovered months. Depending on how long you wait, it could add a significant amount to your premiums going forward. 

You can make any changes to your Part D plan during the open enrollment period, October 15 –  December 7. Even if you are happy with your coverage, be sure to look for other options as your current plan could see a spike in premiums and other out-of-pocket expenses. 

Finding the right healthcare coverage for you is an essential part of a reliable retirement plan. Our team at Goepper Burkhardt specializes in helping people navigate the complexities of retirement planning, and Medicare is a significant component of that plan. 

Would you like to discuss your retirement plan in more detail? Give us a call. We would love to work with you.