Enrolling in Medicare Part D
Medicare is composed of several discrete parts, each of which provides some amount of payment for health-care related services and items. As discussed in the first 4 modules of this course, Part A covers hospital services and Part B deals with medical insurance. Part C, also known as Medicare Advantage, allows private health insurance companies to expand on the coverage provided by Parts A and B. In this module, we will review the basics of Medicare Part D, an optional benefit that covers prescription drugs.
Prescription drug coverage is an optional Medicare service. Unlike Parts A and B, Part D coverage is not automatic. Rather, the patient must take the first step to obtain coverage. There are two ways to get Medicare prescription drug coverage under Part D:
- Add drug coverage to Original Medicare via a Medicare Prescription Drug Plan. The participant must have Part A and/or Part B to join a Prescription Drug Plan.
- Join a Medicare Advantage Plan (under Part C) that offers Medicare prescription drug coverage. The participant must have both Part A and Part B, and all three parts of Medicare (A, B, and D) will be administered by the Medicare Advantage plan. When investigating Medicare Advantage Plans, the participant should ask the administrator whether the plan offers drug coverage, as not all of them will do so.
It’s important to note that a Medicare Advantage prescription drug plan may differ from the standard Medicare plan only to the extent that the plan offers better benefits. For example, a plan can eliminate or lower the amount of the deductible.
Late enrollment penalties
As is the case with other parts of Medicare, it is highly advisable for a new Medicare participant to join a Medicare drug plan when first eligible, since a penalty for late enrollment could be assessed for as long as the patient has Medicare prescription drug coverage. The penalty does not apply if the patient has other “creditable” prescription drug coverage or qualifies for some income-based government assistance such as Medicaid or “extra help.”
Creditable prescription drug coverage means coverage that is expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage. This coverage may be part of an insurance plan that is provided by an employer or a union. If a person has this kind of coverage when she becomes eligible for Medicare, she may keep it. If, later, she decides to drop it and enroll, instead, in Medicare prescription drug coverage, she will not be liable for a late enrollment penalty.
A late enrollment penalty may also be assessed if, at any time after his Initial Enrollment Period is over, there is a period of 63 or more consecutive days when he does not have Part D or other creditable prescription drug coverage. So, if a person loses Part D coverage for any reason, she should join a Medicare drug plan as soon as possible or notify Medicare if she has other creditable drug coverage.
Joining, switching, or dropping a Medicare drug plan
As with other parts of Medicare, a participant should join a Medicare drug plan as soon as she becomes eligible and may do so during her Initial Enrollment Period.
If she gets Medicare for the first time during the General Enrollment Period, she may join a Medicare drug plan from April 1 through June 30, with coverage commencing on July 1. She may also join, switch, or drop during Open Enrollment by submitting the request between October 15 and December 7, with the changes taking effect of January 1 of the following year.
While changes during a calendar year are generally not allowed, a participant may join, switch, or drop a plan at other times if the participant:
- Moves out of his plan’s service area,
- Loses other creditable prescription drug coverage (such as from an employer or union)
- Lives in an institution, such as a nursing home
- Qualifies for Medicaid or “extra help” (to be discussed more later).
A person who is in a Medicare Advantage Plan who then joins a separate Medicare Prescription Drug Plan will be dis-enrolled from the Medicare Advantage Plan and returned to Original Medicare. So, it’s important to consider the consequences carefully before enrolling in Part D.
Switching from one drug plan to another plan can be done simply by joining another plan during the allowed times. The old plan need not be cancelled, and the previous coverage will end when the new plan coverage begins. To drop a Medicare drug plan without joining a new plan, the participant must notify the Medicare office by phone or mail. If he drops a plan and chooses to join a new plan later, he must wait for an enrollment period. A late enrollment penalty may be assessed if he doesn’t have prescription drug coverage.
Coverage, Premiums and Costs
Medicare Part D plans are administered by private insurance companies and so premiums vary by company and by plan. As of 2018, the average Part D premium is $34 per month. The Part D premium is in addition to Part B premiums for those with Original Medicare or may be included in Part C premiums for those enrolled in a Medicare Advantage Plan. As with Part B premiums, high income earners ($85,000 for an individual or $170,000 for married persons filing jointly as of 2018) may have to pay additional amounts over the standard premiums. Premiums may be deducted from one’s monthly Social Security payment or paid by direct billing.
Depending on the requirements of each plan, yearly deductibles and copayments or coinsurance may apply. The amount that a participant must pay for a drug when she has a Medicare drug plan varies based on several factors, including the drug, the plan and the pharmacy.
Each Part D plan has its own formulary (list of covered drugs). In addition, drugs are divided into “tiers” and each tier’s drugs have different costs, with those in a higher tier generally costing more than those in lower tiers. If the authorized prescriber believes that a drug in a higher tier is necessary rather than a similar drug in a lower tier, he or the patient may ask for an exception to get a lower copayment for the higher-cost drug.
Costs can also vary based on the pharmacy as pharmacies may be in or out of the plan’s network. In addition, some pharmacies under some plans may offer cost sharing, which helps the customer save money. Cost sharing can also be on standard or preferred levels. In addition, discounts may be available if a drug is prescribed and ordered in bulk through mail order.
Most Medicare drug plans have an annual coverage gap (also called the “donut hole”). This gap begins when the total payments by the patient and the insurer for all covered prescription drugs reaches a certain amount (related to total coverage by the plan) and ends when the patient has paid up to the threshold for “catastrophic coverage”. Many patients will never enter this gap period because their drug costs are not high enough or because they qualify for “extra help” in paying for Medicare Part D.
Prior to 2011, the patient had to pay the full cost of her prescription drugs while in the donut hole. However, provisions of the Patient Protection and Affordable Care Act of 2010 are gradually phasing out the coverage gap, eliminating it completely by 2020. Starting in 2011, changes to Medicare Part D began to be implemented to reduce the patient’s out-of-pocket costs when she reaches the donut hole. In 2018, while in the donut hole, she will pay no more than 35% of the cost of a covered brand-name prescription drug and 44% of the cost of covered generic drugs. Beginning in 2017, brand-name drug manufacturers and the federal government became responsible for providing subsidies to patients in the donut hole. These subsidies will increase annually and, by 2020, rather than paying 100% of the costs of her prescription drugs, the patient’s responsibility will be 25%, whether brand-name or generic.
The patient remains in the “donut hole” until he spends $5,000 out-of-pocket. This includes his yearly deductible, copayment, and coinsurance amounts, but excludes premiums paid for his drug plan. It also includes the manufacturer’s discount on the drugs that he gets while in the coverage gap, even though the patient does not pay this amount. At this point, when the coverage gap ends, “catastrophic coverage” begins. During this period, his drug plan pays most of the costs of his covered drugs for the remainder of the year and the patient is responsible for a small copayment or coinsurance, typically 5%.
Every prescription drug plan has a list of covered drugs known as a “formulary.” When we looked at premiums, we discussed how drugs in a plan’s formulary may be assigned to various “tiers” and how this may result in payment restrictions. There are some additional rules that a plan may apply to payment decisions, including:
- Prior authorization. The patient or the prescriber must convince the plan that the drug is medically necessary before a prescription may be filled.
- Quantity limits. A plan may limit the amount of a medication that the patient may receive at one time
- Step therapy. In some instances, the patient must try one or more similar, lower-cost drugs before the plan will cover the prescribed drug.
How Other Insurance and Programs Work with Part D
- Employer or union health coverage. If a Medicare beneficiary has prescription drug coverage based on her (or a family member’s) current or previous employment, the employer or union must notify her each year regarding whether its drug coverage is creditable. She may decide to change her enrollment status based on this information.
- COBRA. COBRA (short for the “Consolidated Omnibus Budget Reconciliation Act” of 1986) is a federal law that may allow an employee or her dependents to temporarily keep employer or union health coverage after the employment ends. If the COBRA coverage includes a creditable prescription drug plan, the patient has a Special Enrollment Period to join a Medicare drug plan without paying a penalty when the COBRA coverage ends.
- Medicare Supplement Insurance (Medigap) policy with prescription drug coverage. New Medigap policies can no longer be sold with prescription drug coverage. If the patient has an existing Medigap plan that included this coverage, he may keep his drug coverage. However, since most Medigap drug coverage is not creditable, Medigap policy holders frequently choose to join a Medicare drug plan. When that occurs, the prescription drug coverage under the Medigap policy is removed.
- Government insurance plans that are considered creditable prescription drug coverage. Typically, holders of these policies will keep them after they enroll in Medicare and will not need to join a Medicare prescription drug plan. These include:
o Federal Employee Health Benefits Program. If the policy holder decides to join a Medicare drug plan, she can keep her FEHB.
o Veteran’s benefits. Policy holders may join a Medicare drug plan, but both types of coverage may not be used for the same prescription at the same time.
o TRICARE (military health benefits). This plan covers active-duty service members, military retirees, and their families. Most people with TRICARE who are entitled to Part A must also have Part B to keep TRICARE prescription benefits. A Medicare prescription drug plan is not required, but, if there is one, the Medicare plan pays the costs of prescription drugs up to its limits before TRICARE will pay anything.
o Indian Health Service (IHS). The IHS is the primary health care provider to the Native American Medicare population. Getting Medicare does not affect one’s ability to get services through the IHS, and coverage for prescription drugs will not be interrupted.
There are options available to people who have limited income and/or assets to receive additional assistance in paying medical costs. These include “Extra Help” for prescription drugs and Medicaid for health care coverage.
The Low-Income Subsidy, also known as “Extra Help,” provides additional cost-sharing and premium assistance for eligible low-income Medicare Part D beneficiaries with incomes below 150% of the federal poverty level and limited assets. “Assets” include money in a checking or savings account, stocks, bonds, mutual funds and Individual Retirement Accounts. Assets do not, though, include a home, car, household items, burial plots, up to $1500 per person for burial expenses or life insurance policies. For 2018, the yearly income and resource limits are
- For a single person: income less than $18,090 per year and assets less than $13,820.
- Married person living with a spouse and no other dependents: income less than $24,360 per year and assets less than $27,600.
People who qualify for the Low-Income Subsidy or who are also enrolled in Medicaid do not have a coverage gap (“donut hole”).
Some people automatically qualify for the subsidy while others may qualify after applying through their state Medicaid programs or through the Social Security Administration and fulfill income and asset requirements.
Most Medicare beneficiaries who qualify for the subsidy pay no premiums or deductibles and no more than $8.25 for each brand name drug ($3.35 for each generic drug) that the plan covers. In addition, beneficiaries with Extra Help are not penalized for late enrollment in a Part D plan. Recipients also benefit from a continuous special enrollment period to join or switch plans during any time of the year. They do not need to wait for the formal annual enrollment period. Any changes made to their plans will be applied the following month.
Working with Medicaid and Other Programs
Medicaid is a joint federal and state program that helps pay medical costs. There are people who qualify for both Medicare and Medicaid- called “dual-eligibles”- and the two programs work together to cover most of those beneficiaries’ medical care-related costs. The following general rules apply:
- For patients with both Medicare (either Original Medicare or a Medicare Advantage Plan) and Medicaid coverage, most of their health care costs are covered.
- For those with Medicare and/or full Medicaid coverage, Medicare will cover Part D prescription drugs. Medicaid may cover some drugs and other care that Medicare does not cover.
- People with Medicaid may get coverage for services that Medicare may only partially cover or may not cover at all, such as nursing home care, personal care, and home- and community-based services.
Those who believe they may qualify for Medicaid should be aware that each state may have different income and asset limitations, as well as rules regarding whether the applicant needs to be enrolled in Medicare. Many states have expanded their Medicaid programs and may now accept applicants who were previously denied. In addition, some states and health plans are offering “demonstration” plans-called “Medicare-Medicaid Plans”- for certain people who have both Medicare and Medicaid. An applicant’s local Medicaid office can provide information about whether such plans are available and the requirements for eligibility.
- State Pharmacy Assistance Programs help pay for prescription drugs for certain people based on financial need, age, or medical condition.
- Pharmaceutical Assistance Programs (or Patient Assistance Programs) are managed by many major pharmaceutical companies for the benefit of people with Medicare drug coverage who meet certain criteria.
- Programs of All-inclusive Care for the Elderly (PACE) is a Medicare and Medicaid program offered in many states that helps pay for nursing home-level care to patients who wish to remain at home.
- Supplemental Security Income (SSI) benefits is a cash benefit paid by Social Security to certain people with limited income and resources who are disabled, blind, and/or 65 or older. These benefits are not the same as Social Security retirement benefits.