Our Medicare trilogy is coming to a close today and we are going out with a bang. Today’s post digs into the intricacies of prescription drug plans.
Part D is often one of the most misunderstood aspects of Medicare and today we want to walk you through the four stages of Part D in order to help you understand both the costs and the benefits of this coverage.
Please note that thanks to our Medicare expert, Shirley Van Nostrand at Advantage Insurance Benefits we are able to provide you with 2020 figures throughout this article.
Stage One: Deductible
Stage one is the simplest, it is the annual deductible stage. As with most Medicare plans, Part D does have an annual deductible and in 2020 that number will be $435. Remember, the deductible is the amount of money that you will need to pay before the insurance benefits kick in. This means that once you spend $435, then your insurance will start to pay any expenses.
Stage Two: Initial Coverage
Once you have surpassed the deductible phase, you move into the initial coverage phase of your Part D plan. In this stage, the member and the insurance company share the cost of the prescription drugs until those shared costs reach $4020. This cost can either be divided into set copays or a percentage split (co-insurance).
Take, for example, the drug Eliquis. If a doctor prescribed this medication for 60 tablets (one month supply), based on current pricing the total would be $517.36. Eliquis is a brand name drug, usually categorized as a Tier 3 prescription with a monthly copayment of $47. In this case, the member would pay the pharmacy $47 and the insurance company would pay the $470.36, equalling the $517.36 total. This payment structure would continue until the combined cost of the copayment and the insurance coverage totaled $4020.
Once the $4020 amount is surpassed, the member moves into the coverage gap, or more commonly known as the donut hole.
Stage Three: The Donut Hole
The donut hole is a stage in the prescription drug plan where the enrollee experiences a gap in their coverage. This stage gets its name because when Part D began in 2006, people were responsible for paying 100% of their prescription costs when the initial coverage limit was met. Over the years, laws were put in place shrinking the 100% and in 2020 the donut hole amount will be 25%
When members surpass the $4020 spending threshold, they move into the donut hole and will be responsible for paying 25% for their prescriptions with insurance covering the remaining 75%. This stage remains until together, the member and the insurance company, have paid $6350.
Now, most people assume that since they reached the $4020 number in stage 2 they will only need to reach the remaining $2330 to get out of the donut hole, but that is not the case. Only the copayments made by the member in stage 2 are credited to the $6350, not the money that the insurance company paid in stage 2. This means that the member won’t be starting at $4020, the number will be much lower than that which can leave people in the donut hole longer than they anticipate.
A common question I hear a lot of people ask us if they are able to purchase an insurance policy to cover them in the donut hole. Unfortunately, the answer is no. A policy like that doesn’t exist and you are only allowed to be enrolled in one Part D plan per year. You can change policies during the annual election period (Oct 15th – Dec 7th) with the policy taking effect on January 1.
Stage 4: Catastrophic Coverage
In this last stage, the member moves out of the coverage gap or the donut hole. In this phase, the member’s prescriptions are at their most affordable: $3.60 for generic, $8.95 for all other prescriptions, or 5% co-insurance.
How this works is that Medicare and the insurance company together pay the balance of the prescription costs. The member remains in stage 4 until the end of the calendar year, and in January they start over at stage 1 again.
No matter the type of Medicare plan you enroll in, you will need to make sure you are enrolled in a prescription drug plan. Remember, Original Medicare does not include this type of insurance, nor do the Medicare Supplement Plans. In order to get this insurance, you will either need to go with a Medicare Advantage Plan or enroll in a stand-alone Medicare Part D, which covers prescription drugs. Bear in mind, if someone is enrolled in an Advantage Plan they can’t also enroll in a separate prescription drug plan.
Whether you think you need the coverage or not, it is imperative that you enroll in some type of prescription drug plan, because of a Medicare law. Once you enroll in Part A and B, you have 60 days to enroll in a prescription drug plan. If you don’t enroll within the 60 days, Medicare will issue a penalty. The penalty assigned is based on the national average cost for the plan, which today is a $35 monthly premium. The penalty is 1% of the national average, meaning 35 cents per each month that you don’t enroll.
Now 35 cents may not seem like a lot of money, and at the beginning, it isn’t. But if you wait to enroll in a prescription drug plan for 5 years, that is an extra $21 you will pay per month on your plan. In Washington, the least expensive prescription drug plan is $14.50, so that extra $21 per month will add a significant amount to your monthly medical spending.
The other important thing to note about enrolling in this type of insurance is that the enrollment period is October 15 – December 7. You are unable to enroll in Part D at any other point in the year. So if you need care in April, you will be paying out-of-pocket until you can enroll in October. The only exception is that you do have a 60-day window to enroll in a prescription drug plan after you begin Original Medicare. After that, you will only be able to make changes during the traditional enrollment period.
The Bottom Line
Medicare is an intricate process, one that requires a lot of time and attention to get right. Your health should be a top priority now and through retirement. Selecting the right coverage for you is not a one-size-fits-all plan. There are many factors to consider such as your existing health needs, family health history, future health, and financial responsibilities.
As we enter this new enrollment period, take some time to evaluate your needs and how they can best be met. Medical expenses are among the most costly for retirees. We would love to help you plan for your healthcare expenses in retirement. Schedule a call with us today. We are excited to get to know you.