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What is Medicare PART D?

Part D is prescription drug coverage

Original Medicare (Parts A and B) does not cover prescription drugs. Many people who choose Original Medicare add a stand-alone prescription drug plan or choose a Medicare Advantage plan that includes Part D. Medicare Part D Plans are required to cover certain common types of drugs, but each plan may choose different drugs it covers. The drugs you take may not be covered by every Part D plan. You need to review each plan’s formulary (A formulary is a list of the prescription drugs that are covered by a specific Medicare Part D plan) to see if your drugs are covered. This is something I help navigate with my clients each year in the Annual Enrollment Period if needed.

Part D is optional and not everyone may need it, for example those that are eligible to get their prescriptions filled at their local VA facility or hospital. However, if you do not enroll in Part D when you first become eligible, and you decide to enroll later, you may be subject to the Part D enrollment penalty and may pay this penalty for as long as you have a prescription drug plan. The penalty is a mathematical calculation and is as follows: the number of months without a Part D drug plan × 1% × the national average price of a Medicare prescription drug plan.

In general, you may enroll in a Part D plan if you are entitled to Medicare Part A or if you are enrolled in Medicare Part B. In addition, you must live in the service area of a Part D plan you’d like to enroll in.

Explaining prescription drug coverage in 2021

There are four main stages of a Medicare prescription drug plan in a calendar year. Not everyone will see all of these stage for many reasons. For example, if you receive extra help through Medicare or the state things are designed differently. If you have an employer plan this also may not apply exactly as you see on the chart. It is important to understand this in detail and how it applies to your individual situation, so if you would like to ask me reach out!

The first stage of a Medicare prescription drug plan is the deductible. Not all plans have a deductible responsibility, so this may not apply to your plan. If it does apply, in 2021 the deductible could be as much as $445. This means you would be responsible for the first $445 at the pharmacy before your plan pays their part of the drug cost outlined in the evidence of coverage. Usually this is only on higher tiered medication, but plans can change yearly.

Stage two of a Medicare drug plan is what most are familiar with when they go to the pharmacy and pick up a medication. In this stage you have a set copay (ex. $10, $40) or a coinsurance (ex. 20%) for the medication. You stay in this stage until your retail price of medication reaches the 2021 limit of $4130. Retail price includes your copays AND what your drug company provider has paid. Thus expensive medications like brand name blood thinners can push you through this stage 2 at some point in the calendar year. So what happens at that point, right?

Well then you move into stage 3 - the coverage gap stage. Most Medicare drug plans have a coverage gap (also called the infamous DONUT HOLE). Why do many people hear this term and get nervous? When an individual reaches this stage, they no longer have a "set" copay responsibility on the drug plan. They are now responsible for 25% of all the brand and generic medication being taken until they get through this stage. Once you've spent $6,550 out-of-pocket in 2021, you are out of the donut hole and into catastrophic coverage.

Stage four or catastrophic coverage assures you pay only a small coinsurance amount or copayment for covered drugs for the rest of the calendar year. It is important to note, that the stages of the drug plan reset January 1st, and you go back to stage one.