Medicare's New Prescription Drug Coverage: Medicare Part D

Nolo

Medicare Part D covers some of the costs of prescription medications you take at home.

As of January 1, 2006, Medicare covers some of the costs of prescription medications. The new program, called Medicare Part D, replaces drug coverage through medigap plans, many managed care plans, Medicare drug discount cards, and most Medicaid coverage.

Medicare Part D, however, is not a panacea. Most beneficiaries must pay a small monthly premium, a good-sized yearly deductible, and a copayment for each prescription. Gaps in most plans' coverage also lead to situations where beneficiaries become, for a time, responsible for all their prescription costs. (These coverage gaps are also aptly referred to as "donut holes," because people receive coverage both before and after reaching certain payment limits.)

Who Is Eligible for Medicare Part D?

Anyone entitled to Medicare Part A (whether actually enrolled or not), or anyone currently enrolled in Medicare Part B, may join Medicare Part D.

Enrollment is voluntary, except for people who also receive benefits from Medicaid. If you qualify for Medicaid, the government automatically enrolls you in a Medicare Part D plan, through which you will receive your prescription drug coverage.

Medicare Part D does not replace drug coverage through Veterans Affairs, TRICARE, or the Federal Employee Health Benefits program, or employer-sponsored drug coverage if that coverage is equal to what is offered by a basic Medicare Part D plan.

Part D Costs

Most beneficiaries pay a monthly premium, a yearly deductible, and a copayment for each prescription.

Low-income beneficiaries get help with Part D costs. Low-income Medicare beneficiaries may qualify for a low-income subsidy (LIS) to help pay costs associated with Part D plans. Learn about eligibility requirements and apply for a subsidy at a local Social Security Administration office, online atwww.ssa.gov, by calling the Social Security Administration at 800-772-1213, or at your local county social services office.

Premiums

A premium is the monthly amount you pay directly to your prescription drug or managed care plan to maintain enrollment in Part D coverage. Amounts vary from $0-$75 per month; premiums are averaging $32 per month in 2006.

Deductibles

The deductible is the amount you must pay out-of-pocket for covered medications before your Part D plan begins contributing. With most plans, the 2006 deductible is $250. However, some plans offer “first dollar” (no-deductible) coverage, which means the plan begins paying its share for an enrollee’s first covered prescription of the year.

Initial Copayments

After you pay the deductible, your Part D plan pays most of the cost of covered drugs. You are personally responsible for the remainder, known as a copayment, or coinsurance. Under Medicare’s minimum standards, people without a low-income subsidy pay no more than 25% of the prescription cost and the plan pays no less than 75% (after the deductible is met). This split continues until total covered expenditures have reached the year’s coverage gap (see below).

Under several circumstances, a Part D plan enrollee may not have to pay the normal copayment for a covered drug. For example:

• People who live in a long-term care nursing facility and who are enrolled in both Medicare Part D and Medicaid have no copayments.
• Some plans waive or reduce copayments for certain drugs, particularly generic versions, to coax people to join that particular plan. But the plan can change this copayment waiver at any time.
• Pharmacies may waive copayments for any drug for an enrollee with a low-income subsidy. The waiver is not automatic; you have to ask for it.

Gaps in Part D Coverage

Part D is not a cure-all. In addition to the costs discussed above, there are restrictions on prescriptions, as well as a coverage gap.

Coverage Gap

A notorious part of the Part D program is the coverage gap. After you and your plan together pay a certain amount for covered prescription drugs ($2,250 in 2006), your plan stops paying anything and you must pay the full cost of your prescriptions. The plan begins to pay again — and pays more of the cost than before you reached the coverage limit — when total expenditures reach a “catastrophic” level ($5,100 in 2006). Low-income Medicare beneficiaries with a subsidy do not have a coverage gap.

Restrictions on Coverage

Insurance companies may impose many different types of restrictions on their Part D coverage. For example:

• Plans may limit coverage to specific drugs. Each plan issues a list (called a formulary) of the drugs it covers, and a plan may change its formulary at any time.
• Plans may have different copayment amounts for different drugs.
• Some plans require the pharmacy to substitute a generic version of a drug unless you request and receive an exception.
• Plans may require documentation from your physician that you need a particular drug before the plan will cover it.
• Some plans impose a step therapy requirement, which requires you to try the least expensive drug in its class and then get your doctor to certify that that drug doesn’t work before you may “step up” to the higher-cost drug.
• Some plans restrict the number of doses in each prescription.

Also, each Part D plan contracts with specific pharmacies to deliver medications, and you must get your drugs from a participating pharmacy to get full benefits.

Enrolling in Part D

The initial deadline to enroll in Medicare Part D was May 15, 2006. But if you missed it, don't panic. The next opportunity to enroll will be the open enrollment period during November and December. Unfortunately, most people eligible for coverage who did not sign up by May 15 will pay a penalty of 1% per month in higher premium payments if and when they do enroll.

Before you choose a specific plan, research several. For help choosing a plan, check out the new edition of Nolo's Social Security, Medicare & Government Pensions, by attorney Joseph L. Matthews and Dorothy Matthews Berman, which contains more detailed information on Medicare Part D.