This post discusses Medicare Part D, who needs it, when to get it, and how to save money on drugs.

Medicare Part D: Prescription Drug Plans

Medicare Part D was a welcome addition to our Medicare program in 2006. Prescription Drug Plans are offered by private companies that follow guidelines established by Medicare. The government wants everyone on Medicare to have drug coverage as soon as they’re eligible. Late penalties are assessed by the government for every month someone was eligible to get a drug plan and chose not to. Those who have “creditable coverage for Part D” through another source such as group health insurance have late penalties waived while that other insurance is in force. Learn about Medicare late enrollment penalties and “creditable coverage” here.

You can buy a prescription drug plan as a standalone plan all by itself, or you can get it as part of your Medicare Advantage plan. (About 90% of Medicare Advantage plans include prescription drug coverage.) If you buy a standalone drug plan, it might be part of your Medicare Supplement solution, or it could be in addition to your group health insurance.

General Information

  • To be eligible to buy a Part D plan, you must be enrolled in either Medicare Part A or Part B. It’s not necessary for you to have both A and B.
  • Prescription drug plans run from January 1 through December 31.
  • The best drug plan for you has everything to do with which prescriptions you are taking.


Dates are Important

  • When you first join Medicare, you’ll have an Initial Election Period to enroll in a drug plan. If you don’t enroll during that window, you’ll have to wait until the Annual Election Period in the fall.
  • If you delay your Part D enrollment because you have “creditable coverage” through another source, you will have a 63-day window to enroll in a Part D plan when that other coverage ends.
  • If you miss the window of opportunity when you’re supposed to enroll in a Part D plan, you’ll have to wait to enroll until the fall during Annual Election Period.
  • The only time you’re allowed to change your prescription drug plan is during Annual Election Period between October 15 and December 7. That change will be effective January 1.
  • It’s important to evaluate your drug plan each fall during the Annual Election Period because drug plans change their formulary every year, and your prescriptions will change over time too.

Drug Formulary and Tiers

Each prescription drug plan includes a formulary that is a list of prescriptions that are included as part of their plan. Each plan is required to have several different medicines for each drug classification, but they won’t have every drug available in their formulary.

Each prescription drug plan divides their drugs into tiers. Most plans have five tiers, but some could have more or fewer. The higher the tier, the higher the price of the drug.

Tier 1     Preferred Generics

Tier 2     Standard Generics

Tier 3     Preferred Brands

Tier 4     Non-preferred Brands

Tier 5     Specialty

Prescription Drug Plan – Case Study

You might have heard horror stories of people who have entered the “donut hole” for their Part D plan, and they’re alarmed by the cost of their prescriptions. The good news is that fewer than 15% of Americans make it to the donut hole each year. This case study from one of my clients illustrates how it works.

This client has 13 different prescriptions:

  • Three are Tier 1
  • Seven are Tier 2
  • Three are Tier 3

She was leaning towards choosing a Medicare Supplement, so we ran prices for stand alone Prescription Drug Plans first. With the best one we found available in her county, she will enter the coverage gap in March and stay there for March, April, May and June. You can see how much higher the cost will be for her during those months. That is why people are alarmed when they hit the coverage gap (also called the donut hole).

For comparison purposes, we also priced her medications through the Medicare Advantage plan that had her doctors in network. She could save a few hundred dollars on prescriptions over the course of a year if she enrolled in a Medicare Advantage plan, which is nearly always the case. However, she decided to go with the Medicare Supplement.

The highest-price drug plans in her county did not have some of her medications on their formulary, so that is why the totals for some plans are outrageous. Drug plans are not all the same, even among the same insurance company. Drug formularies change from year to year also. That is why we run prescriptions through our software each year to find the most cost-effective solution for each client. If you have a complicated prescription profile, making sure you’re on the right plan for you is critical.

I will explain how Part D works in a minute, but first I want to confess that I don’t understand how my car works or how my computer works or my washing machine either. However, I do know which buttons to push on each of those machines to make things happen. That’s how I feel about Part D. Even after we explain it, most people don’t understand it because it’s confusing, but we know which buttons to push on our software to tell us which plan in your area would give us the best prices for the prescriptions you take. The best prescription drug plan for you has everything to do with which prescriptions you’re taking, so you and your spouse might be on different plans.

Part D Stages

Prescription Drug Plans are divided into four stages that you progress along during a calendar year. How fast you move from one stage to the next depends on the cost of your prescriptions.

Stage 1: Deductible

The deductible stage starts each year on January 1. A deductible is the amount of money you need to spend before the insurance starts helping you pay the costs. The highest deductible a drug plan can have in 2022 is $480, but many drug plans have a lower drug deductible than that. Some even have a $0 deductible, especially those that are part of Medicare Advantage plans. During the deductible phase, you’ll be paying 100% of your drug costs. But again, some plans have a $0 or low deductible.

Stage 2: Initial Coverage

After you meet the deductible, you’ll enter the initial coverage phase. This could be late January or June or never, depending on your prescriptions and how much they cost. During this stage, all the money you pay for your drugs PLUS all the money that the insurance company pays for your drugs is totaled. Once that number passes $4,430 you will be into the coverage gap stage (also called the donut hole).

Stage 3: Coverage Gap (Donut Hole)

During this stage you’ll pay 25% of the retail drug costs for your medications. Once your total out-of-pocket spend reaches $7,050 (the amount that you and your insurance company spend combined), you’ll get to the other side of the donut hole and enter the catastrophic coverage phase.

Stage 4: Catastrophic

During this stage, you’ll pay just 5% of the retail cost of your drugs. You’ll stay in the catastrophic phase until December 31, at which time the drug plan resets, and you’ll enter the deductible phase again for January 1.

Clear as mud, right? Don’t worry about understanding that; most people don’t. Again, we know how to enter your medications in the software, your dosages, how many pills you take per day, etc, so that we can accurately forecast which drug plan in your county is going to have the best price for you.

Tips for Saving Money on Prescriptions

Please visit this page for tips on saving money on your prescriptions.

Below the tips is a link to our software that allows you to enter your prescriptions and dosages and see which plans in your area will price those prescriptions the lowest. For best accuracy, please watch the short video that explains how to use this tool.

Help is free!

I’m Laraine Sookhoo and I’m passionate about helping you understand your Medicare options so you can get the most out of your Medicare benefits. My help is free, so book an appointment to get started!

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