Prescription Plans for Medicare Part D, Age Eligibility, and How to Enroll

What is Medicare Part D Plan

Medicare Part D, the Prescription Drug plan is a part of the Medicare program (optional to anyone with Medicare) that caters to most outpatient prescription drugs. Part D is “privatized”, meaning its offered and managed through approved private companies either as a stand-alone prescription drug plan (PDP) for Original Medicare enrollees or packaged as a benefit in a Medicare Advantage prescription drug plan (MA-PD)- Which includes HMOs and PPOs, that cover all Medicare benefits including drugs.

Part D plans usually have a list of covered drugs (formulary).

Any drug(s) not listed on the formulary is not covered unless;

• It’s requested as an exception
• Enrollees cater for the drug out-of-pocket, or
• You can file an appeal to review the cover.

All Part D plans are mandated by law to offer at least two drugs for most categories.

They must cover some vaccines (except those offered under Part B) and all drugs in the following categories:

• HIV/AIDS medications and treatments
• Antidepressants
• Antipsychotic treatment
• Anticonvulsive seizure disorders treatments
• Immunosuppressant drugs
• Drugs for the treatment of cancer (unless covered by Part B)

By law, drugs used to treat weight loss or gain, and over-the-counter drugs are explicitly excluded from this coverage.

How do Part D Plans work

Most Medicare Part D plans have 4 phases;

• Deductible period:

Enrollees foot the full negotiated price for covered prescription drugs. Once they have met the full deductible, the plan starts to provide coverage for the cost of drugs.

Deductibles do vary from plan to plan and some plans don’t impose deductibles, however, the set upper limit is $480 in 2022.

• Phase 2-Initial Coverage:

Most plans have an annual deductible. Enrollees have to cater to costs equal to the deductible amount to access Initial Coverage. In phase 1, the enrollees will continue footing copays or coinsurance on covered prescription drugs until they reach their Initial Coverage Limit, and move to the Coverage Gap.

• Phase 3-Coverage Gap (“Medicare donut hole”):

In this phase, the enrollee accesses brand and generic drugs at a discount until their combined drug costs reach the limits of the Coverage Gap, then moves to Catastrophic Coverage.

• Phase 4-Catastrophic Coverage:

Enrollees pay a token amount for medications (typically less than 5%. The plan caters to the rest of the costs).

Medicare Part D with Gap Coverage

The Coverage gap also called the “donut hole” is the temporary limit on what a drug plan will cover for drugs (the total amount paid by both the enrollee and the insurer).

It’s that phase of Part D coverage after your initial coverage period. During this period, you are responsible for 25% of the cost of drugs. For example, if a drug’s total cost is $100 and your copay is $20 during the initial coverage period, you will be responsible for $25 (25% of $100).

The limit for 2022 is $4,430 ($4,660 in 2023). This amount may change each year.

Please note, most individuals will never enter the coverage gap, and this Coverage is not applicable to individuals on Extra Help.

Who is Medicare Part D eligible

All individuals with Medicare are eligible to enroll in a Part D plan. Also, the individual must also have;

• Part A and/or Part B.
• Must Live in (have a permanent residence or in the case of a homeless person a Post Office box) Part D Plans service area. Usually, PDPs are national plans, however, some MA-PDs have delineated regions (or states).

Remember Your Part D IEP (usually the same as Medicare IEP) is a seven-month period that includes the three months before, the month of, and the three months following your 65th birthday.

Enrollment in a Medicare Part D plan is voluntary. However, individuals eligible for both Medicare and Medicaid, and certain low-income beneficiaries may be enrolled automatically if they haven’t chosen a plan on their own.

The following are not eligible;

• Individuals not residing in the U.S. are not eligible. They may do so upon their return to the country.
• Incarcerated individuals are not eligible for Part D. Eligibility resumes upon release from prison.

Age eligibility for Medicare Part D

All persons eligible for other parts of Medicare are also eligible for enrollment in the Part D plan. This is usually at 65 years of age (However, there are age exceptions for persons with disabilities and medical other chronic conditions, including ESRD and ALS).

Failure to enroll at 65 years exposes an individual to a 1% late enrollment penalty (LEP) for each month of delay.

Medicare Part D how to enroll

There are 2 ways to access Part D Prescription Drug coverage (when already enrolled in Original Medicare Part A and/or Part B).

• Medicare Drug Plans. Enroll in a separate, or standalone, Medicare Part D Prescription Drug plan (On turning 65 or during Open Enrollment). Individuals with a Medicare Medical Savings Account (MSA), Private Fee-for-Service (PFFS) plan without drug coverage, or Medicare Cost Plan, are allowed to enroll in a PDP.
• Get a Medicare Advantage Plan(Part C) or other Medicare Health Plan that includes drug coverage e.g. HMO or PPO (Note: Not all Medicare Advantage plans have drug coverage)

Medicare Part D Enrollment Periods

First-time enrollment is typically allowed during the;

• Initial Enrollment Period (IEP),
• Open Enrollment Period (Beware of penalties if enrolling for the first time. You can also make plan changes at this time), or
• Special Enrollment Period (SEP).

Special Enrollment Period for Medicare Part D

Under certain Life Qualifying circumstances, Individuals may be allowed to enroll in a Part D plan during the Special Enrollment Period (SEP). This includes:

• Was receiving care through a creditable drug coverage
• Receive care through their(or their spouse’s) job-based drug coverage
• Are eligible for Extra Help

Medicare Part D Penalty for Late Enrollment

Individuals who do not enroll on time for Part D plans yet have Medicare access, face gaps in coverage as well as a late enrollment penalty (LEP) equal to 1% of the national average premium for each month they delay enrolling (penalty is accessible as long as you have Medicare drug coverage). Unless they demonstrate that;

• have access to creditable drug coverage
• They have Qualified for the Medicare Extra Help program
• Proving that they did not receive adequate information to determine that their drug coverage was creditable.

late enrollment penalty (LEP) is applicable to any excess time after the period of 63 days in a row (after the Enrollment Period) and an individual has not enrolled into a Medicare drug coverage or any other creditable prescription drug coverage Plan.

Please note, if enrollment into Medicare was as a result of disability, and an individual is currently being charged a premium penalty, once they hit 65 years, penalties are no longer applicable. This is so because they now qualify for a new Part D IEP on turning 65.

Medicare Part D Penalty Calculation

Late enrollment penalty (LEP) depends on how long an individual went without creditable prescription drug coverage.

Currently, the late enrollment penalty (LEP) is tied to 1% of the national average premium across each full month of delay ($33.37 in 2022, $32.74 in 2023-rounded to the nearest $.10)

Example:

Jane delayed enrolling for Part D for seven months and did not meet any exceptions.

The late enrollment penalty (LEP) to be added permanently on top of her plans premiums will be $2.34 ($33.37 x 1% = $0.3337 x 7 = $2.34) per month, which is 7% higher for as long as she has Part D.

Note: late enrollment penalty (LEP) is always based on the national base beneficiary premium. It will not reduce simply by switching to a plan with a lower premium.

How can you avoid the Part D late enrollment penalty

1. Ensure you have enrolled in Medicare drug coverage at first eligibility.

Healthy individuals (even those not on drugs) are encouraged to join a Medicare drug plan or a Medicare Advantage Plan with drug coverage to avoid penalties. There are many plans that may check the box with little to no monthly premiums.

2. Enroll immediately into Medicare drug coverage on the loss of creditable coverage.

This should be done within 63 days of losing your creditable prescription drug coverage else you will be assessed a penalty if you sign up for Medicare drug coverage later.

3. Keep records as evidence that you had creditable drug coverage, and inform your current plan should they ask about it.

Non-disclosure of this fact to your Medicare plan may expose you to this penalty for as long as you have Medicare drug coverage.

Signing up for Medicare Part D

Enrollment into the Part D plan can be done via the following:

• Call 1-800-MEDICARE. You will receive guidance on options and enroll in a plan.
• Access Medicare’s Plan Finder tool to make comparisons between plans and enroll.
• Make a call to the plan you wish to join, and a representative can help you.

Payments for Part D

• Can be taken directly out of your monthly Social Security check(which tends to be associated with minor delays but still, the plan cannot dis-enroll or bill you for the delayed premium), or
• You can make direct monthly payments.

Note: individuals with Extra Help or living in a nursing home, have an option of changing Part D coverage once per month.

Medicare Part D Deductibles

This is the amount enrollees pay each year for prescriptions before Medicare drug plan care kicks in.

Deductibles vary across Medicare drug plans (with some plans not having a deductible) but the maximum is capped at $480 in 2022 ($505 in 2023).

Typically Plans that have a deductible, will cover drugs on some tiers before the deductible.

Extra help with Medicare Part D

Low Income Subsidy for Medicare Part D

Extra Help is a Medicare program that offers assistance in paying for prescription drug costs for qualified individuals.

It’s only available to individuals with limited income and modest assets (usually people whose income is less than 150 percent of the federal poverty level)

It helps offset out-of-pocket costs for Part D (premiums, deductibles, co-pays, and Coinsurance through the Part D Low Income Subsidy administered by the Social Security Administration.

Note: Part D late enrollment penalty is not applicable if you are on Extra Help. Some individuals qualify for Extra Help automatically, while others people need to apply.

Cost for Medicare Part D

In 2022, the costs you pay out of pocket for Medicare Part D include:

• The premium for Medicare Part D:

Premiums vary across plans. However, the Average national premium is $33.37 in 2022. People with high incomes may pay a higher Part D premium. Most people only pay this premium. Remember it attracts a late enrollment penalty if you sign up late.

• Annual deductible:

Also varies by plan. Cannot go beyond $480 if you are not on Extra Help (it’s $0 if on Extra Help and $99 if on partial Extra Help or the plan’s standard deductible, whichever is lower. some plans do waive this cost.

• co-payments and co-insurance for specific drugs

If you are not on Extra help, this will vary across plans and by drugs within a plan. When you meet the set threshold for;

Coverage Gap (“Donut Hole”)

That’s when you have spent $4,430 in total drug costs. During the coverage gap, you will have to pay 25% of the cost of your drugs

Catastrophic coverage

You spend $7,050 in out-of-pocket costs pushes an individual from the coverage gap to the catastrophic coverage (out-of-pocket costs will be 5% of drugs cost or $3.95 for generic brand drugs and $9.85 for original/brand-name drugs (whichever is greater)).

However, If you are on Extra Help or Medicaid

Earning below 100% of the federal poverty level (FPL) ($13,590/year in 2022 for individuals and $18,310/year for couples); Out of pocket costs will be $1.35 for generic brand drugs and $4.00 for original/brand-name drugs.

Catastrophic coverage

You will pay $0 for each drug for the rest of the calendar year after spending $10,012.50 in total drug costs ((out of pocket costs will be $0 for drugs cost, or $3.95 for generic drugs and $9.85 for original/brand-name drugs (whichever is greater)).

If you have partial Extra Help, out-of-pocket costs will be 5% of drug cost, or $3.95 for generic brand drugs and $9.85 for Original/brand-name drugs (whichever is greater)).

Social Security also charges an extra amount in 2022 for individuals earning above $91,000(file individually) or $182,000(married and filing jointly) and $97,000(file individually) or $194,000(married and filing jointly) in 2023).

Bottom Line

It’s advisable to enroll in Part D when you first get Medicare. Delays in enrollment may expose an individual to gaps in coverage and enrollment penalties.

Married couples do not get cost breaks;

• Each spouse is to pay their own premiums, deductibles, copays, and coinsurance for prescription drug coverage.
• Individual spouse will reach their annual level of coverage according to their own drug costs.

By law, Part D plans are mandated to provide “standard benefit” (minimum standard level of coverage in terms of the structure of cost-sharing, not the drugs covered), but beyond this, plans can enhance their level of coverage, drug lists, and monthly premiums.