Prescription drug coverage, also known as Part D of Medicare, was established through the Medicare Modernization Act (MMA) of 2003, and it came into effect three years later. If you are one of the approximately 55 million people on Medicare, you have access to Part D private plans approved by the federal government.
You can choose standalone prescription drug plans (PDPs) or Medicare Advantage prescription drug plans that cover all Medicare benefits, including prescription drugs. In 2016, there are 34 PDP “regions” offering 886 PDPs, which is actually the lowest number available since the Part D was implemented in 2006.
The Importance of Shopping Around for Specialty Drugs
The Part D plans available vary hugely in terms of the drugs listed in their formularies, how they use formulary “tiers,” along with the level and structure of the cost sharing applied within the tiers. Furthermore, premiums and deductibles vary from plan to plan.
Specialty drugs – defined by Medicare as prescription drugs costing more than $600 per month – could cost enrollees in Part D thousands of dollars in out-of-pocket expenses even after enrollees exceed the Catastrophic Coverage threshold.
According to findings from detailed research by the Kaiser Family Foundation, enrollees purchasing specialty drugs for hepatitis C, cancer, multiple sclerosis, and rheumatoid arthritis could pay anywhere from $4,000 to $12,000 in out-of-pocket costs annually.
Other findings included:
- Out-of-pocket costs can be 10+ times higher when enrollees use specialty drugs NOT on a Part D plan’s formulary.
- Monthly out-of-pocket costs varied by up to $100 across plans when it came to the most commonly used generic and brand name drugs.
- In a hypothetical scenario where five beneficiaries took various medications for different conditions, total out-of-pocket costs across Part D plans varied by up to 300 percent.
Consequently, it is clear that you should compare multiple plan options around when looking for specialty drug coverage, as you could potentially save thousands of dollars per year.
Picking the Right Part D Prescription While Cutting Costs
Assuming your insurer still offers the plan, you do not actually need to do anything during the Open Enrollment Period of October 15 to December 7. However, it is wise to begin researching the Part D plans available to you (the average Medicare enrollee can choose from 26 prescription drug plans) to confirm that your current plan is still the best option for your needs. Failing to switching plans could be expensive, as you may face an average annual premium increase of 13 percent if you stick with your current plan. This is only one aspect to consider when choosing a plan to reduce your costs.
Choosing Generic Drugs
Generic drugs are virtually identical to their brand equivalents. This means you save up to 80 percent of the cost while benefitting from the same active ingredients.
Be Specific When Checking Plans
First, you need to ensure your drug of choice is still on the plan’s formulary. If it is not, you will pay 100 percent of its cost. Even when it is available, you will find the out-of-pocket costs vary drastically depending on the insurer. While some plans have no deductible, others will require you to spend over $300.
The majority of Part D plans have five tiers of pricing:
- Preferred generics
- Non-preferred generics
- Preferred brand name
- Non-preferred brand name
- Specialty drugs
While your insurance company may charge 20 percent of the cost of preferred brand name drugs, they may charge 40 percent for non-preferred brand name drugs. A simple switch from preferred to non-preferred status and your out-of-pocket costs can skyrocket.
The Medicare Plan Finder is an excellent tool to help you find your drug’s premiums, restrictions, and out-of-pocket costs, as well as whether it is in an insurer’s formulary.
In 2016, approximately 85 percent of Part D plans will charge less if you use in-network pharmacies; this compares to just 7 percent of plans in 2011. For example, with the Humana Wal-Mart prescription drug plan, it is only necessary for you to pay 35 percent of the cost of non-preferred drugs at Sam’s Club, Wal-Mart, or the insurer’s mail-order network. If you buy the same drugs from other retail network pharmacies, you will pay approximately 50 percent of the cost.
In the aforementioned Donut Hole page, we also mention the different state aid programs available on Part D Medicare:
- Pharmaceutical Assistance Programs: Individual states and certain insurance companies may help you pay for drug costs or premiums.
- Extra Help: This is a Medicare and Social Security program for people below a certain income threshold, and it helps pay for prescription drugs. Those who qualify could pay no more than $7.40 per brand name drug and no more than $2.95 per generic drug in 2016.
- Other Aid: There are also programs such as BenefitsCheckUp, the National Organization for Rare Disorders, and the National Patient Advocate Foundation.
The Donut Hole
The coverage gap, also known as the Donut Hole, kicks in once you spend $3,310 on out-of-pocket costs in a year. It ends after you’ve spent $4,850, when you then reach Catastrophic Coverage level. The coverage gap can be very expensive, as you will pay 45 percent of brand name drug costs and 58 percent of generic drug costs.
Use the Plan Finder to compare three plans side-by-side and determine which plan is the best for you. This will allow you to get a reasonable idea of whether you will reach the donut hole this year. A plan that helps you stay below the $3,310 threshold is worth considering, as long as it meets your needs.
If you require a number of different medications, or you need expensive prescription drugs, the out-of-pocket costs could be significant. Plan ahead to avoid paying more than is necessary. Additionally, always do your research and be ready to switch during the Open Enrollment Period if you find a more suitable Part D plan.