Medicare Part D

Part D is one of those things that can be really frustrating.  Prior to 2006 Medicare didn’t ever provide prescription coverage, so expanding into Part-D was a step in the right direction, but there is still a lot to be wanted.

Original Medicare consist of Parts A & B, that’s for hospital and medical coverage only.  There are two main ways that people can protect themselves against the gaps in original Medicare; by purchasing a Medigap plan or by enrolling in a Medicare Advantage plan (learn more about the differences between these here).

A MA can come bundled with a prescription drug plan (this is where MAPD comes from, the PD stands for Part-D).  If you purchase a Medigap plan you will also need to add a standalone Part-D plan.  If you purchase a standalone prescription drug plan, you will pay a monthly premium to a insurance carrier for this coverage.  With MAPD plan, the cost is typically bundled into the monthly plan premium.

Drug Tiers & Formularies

All drug plans use what is called a formulary.  A formulary is just a list of all of the drugs covered by a plan, broken into different tiers.  There are five tiers and with each tier increase, the copay or coinsurance increases.

Not all formularies are the same between companies and not all drugs are on every formulary.  Many formularies will cover a generic version of a drug, but not the name brand, while other may cover a different generic version and the name brand.

When you sign up for a standalone prescription drug plan or a MAPD plan, make sure you enter your current prescriptions into the system to get an idea of your actual cost per year.

How Much Does it Cost?

Prescription drug plans all function the same way.  You pay an insurance company money each month in the form of premiums, and when you are prescribed medication by a doctor the insurance company covers part of the cost.  You pay this cost in addition to your Part-B premium.

If you purchase a standalone Part D, you are able to have the premium automatically deducted from your Social Security or Railroad Retirement Board benefits by contacting your plan.  You can also contact your plan if you want to stop having the premiums automatically deducted and instead be sent a bill each month.

The exact cost you pay for Par-D will vary.  If you don’t sign up for Part D when you’re first eligible, you may have to pay a late enrollment fee (you can read more about that here).  Additionally, Part D is subject to IRMAA (you can learn about IRMAA here).  Finally, the plan you purchase will also determine your cost.  Not all plans are created equal and some cost more than others.

On top of the monthly premiums, drug plans do have deductibles and coinsurance.  The cost vary depending on what phase of coverage you are in.  The dollar amount that you pay in each phase are the same for any drug plan that you buy, even if it is from a Medicare Advantage plan, but the cost of the drug you purchase will vary depending on your plan.

The four phases and the cost associated with them is below.

Phase 1:  This is called your Annual Deductible Phase.  In this phase you will pay 100% of the cost up to your deductible of $545.  Some plans do not have a deductible, in which case coverage starts with Phase 2.

Phase 2: The Initial Coverage Phase.  In this phase you will pay 25% of the cost and the insurance company will pay the remaining 75%.  You are in this phase from the moment you spend the first $545 until you and the insurance company have spent a combined $5030.

Phase 3: The Coverage Gap Phase (sometimes referred to as the Donut Hole).  In this phase the insurance company only pays 5% of the cost of the drug.  You will pay 25% and the manufacturer will pay the remaining 70%.  This phase last until you and the manufacturer have spent a combined total of $8,000.

Phase 4: This is called the Catastrophic Phase and it starts after you reach $8001 spent.  From this point until the end of the calendar year you will pay $0 for all drugs on your plan’s formulary.

There are a lot of percentages and dollar amounts above, but the big take away should be that your true max out of pocket are capped at $3300 for name brand drugs in 2024.  This cap will go down further in 2025 to approximately $2000.  This cap only applies to drugs on a plans formulary and will not apply to what you pay for cost using GoodRX and such.

Is It Optional?

Technically, yes.  But I never recommend a person not have a prescription drug plan.  There are two main reasons for this.  First, if you do not purchase a Part D plan during one of your eligibility windows, you won’t be able to purchase one when you do need it.  Second, not purchasing a Part D plan can result in some pretty hefty penalties down the road when do enroll.

A lot of people incorrectly think that since they are healthy and don’t take medications right now, they can wait to enroll in a plan down the road when they actually need one.  When they do get a plan, they are hit with the shock of lifelong fees that accumulate for every month they went without protection.  And while $0.34 per month isn’t much, it adds up fast.  Going just one year without coverage adds almost $50 in fees that you’ll be paying extra every single year moving forward.

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