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Now that we have explained the hospital and medical side of the Medicare
program, it is time to take a look at how Medicare helps pay for prescription
drugs. As before, I need to start with a disclaimer that I am a private individual
not affiliated with the federal Medicare program. While I worked hard to
ensure the accuracy of my information, it has not been reviewed by Medicare. If
there are any disagreements with official Medicare materials, those materials
should be relied upon. I hope that you find the information useful.
Medicare Part D Drug Coverage
For many years, Medicare offered very minimal protection against prescription
drug costs. Some Medicare supplement policies offered drug coverage, but the
benefit was limited. This changed in 2006 with the rollout of Medicare Part D.
Under Part D, private insurance companies contract with the government to
cover a portion of seniors’ prescription drug costs. As of November 2015, 39.9
million Americans and 555,000 Marylanders were enrolled in a Part D plan1
.
I mentioned in a previous article that it is important to sign up for your Part D
coverage when you are first eligible in order to avoid permanent late
enrollment penalties that will grow over time. Even if you do not presently take
any drugs, it can make sense to sign up for the cheapest plan available to avoid
penalties and so that you will have some coverage in place if an expense comes
up during the year.
There are two ways you can get your Medicare drug coverage. It can be on a
stand‐alone basis (known as a PDP) or integrated with a Medicare Advantage
plan (known as an MAPD). If you are enrolled in Traditional Medicare or a
Medicare Advantage plan that does not offer drug coverage, you will need to
separately sign up for a PDP drug plan and pay an additional premium. If you
are enrolled in a Medicare Advantage plan that covers drugs, the additional
premium that you may pay for your plan will include the cost of your drug
coverage.
Your costs in a Part D plan include your monthly premium as well as the
amount that you pay in drug costs. These can each vary widely from plan to
1
Medicare Enrollment Dashboard
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plan, and you need to take both premiums and claims into consideration when
choosing your plan.
To understand why the cost for the same drug can vary from plan to plan, you
need to know that each plan negotiates its drug prices with the manufacturer.
Some get better deals than others and can pass the lower costs on to you. Even
within a given plan, costs for the same drug can vary from pharmacy to
pharmacy. Some plans have further refined their pharmacy networks to include
preferred pharmacies, where you will pay less than at other pharmacies.
Every plan also works with a “formulary,” which is a list of the specific drugs
that it covers and whether these drugs are generic (lower cost), brand (higher
cost) or specialty (highest cost). There are generally up to five tiers in a
formulary, each with its own level of cost to you. Plans control their costs by
placing the drugs that are most expensive for them into a tier where your cost
will also be higher. One popular plan has the following co‐pays for each
prescription in its formulary: Preferred Generic, $5; Generic, $10; Preferred
Brand, $35; Non‐Preferred Brand, 40%; and Specialty Drugs, 33%.
Some drugs will be excluded from the formulary, but every plan must cover at
least two drugs from each class that is used to treat a medical condition. If you
are taking a specific medication, you must be sure that the plan you sign up for
will cover it or that the plan’s alternative is acceptable to your doctor. If a drug
is not on your plan’s formulary and your doctor feels that there is no alternative
for you, he can apply to your plan for an exception.
Medicare defines a standard Part D plan structure that companies make
available, but they can offer a design that is equivalent or better in its expected
cost to you. With the standard benefit, your calendar year is broken into four
phases in terms of the amount of cost that you may pay. The periodic
explanation of benefits that you receive from your plan will tell you which
phase of coverage you are in based on your year‐to‐date costs. If you have
limited drug costs, you may not even make it to the second phase of coverage.
Phase 1 – This is the deductible, where you are responsible for 100% of drug
costs. In 2016 the maximum deductible that a plan can charge is $360, but some
plans lower or even eliminate the deductible.
Phase 2 – After you have paid your deductible, your Part D plan will pay for
75% of your drug costs, and you will be responsible for the other 25%. This
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phase continues until the total that has been spent on drugs between you and
the plan reaches the Initial Coverage Limit, $3,310 in 2016. Instead of requiring
you to pay a flat 25% for each drug, many plans will have a tiered co‐pay
structure, as explained above.
Phase 3 – This is the Coverage Gap, also infamously known as the “donut hole.”
Once total drug costs paid by you and the plan exceed $3,310 for the year, you
will need to pay a larger amount of your drug costs. Before the Affordable Care
Act, enrollees needed to pay 100% of all drug costs in the donut hole, unless
they bought a plan that offered extra coverage. Under the ACA, the donut hole
is gradually being closed so that by 2020 you will only need to pay 25% of the
drug cost. For 2016, you will pay 45% of the cost for brand name drugs, and 58%
of the cost of generics, with the drug companies, the government, and the Part
D plan paying the rest. You will be in the coverage gap until your spending for
the year (plus 50% of the brand drug costs in the gap) reaches $4,850.
Phase 4 – Once you have spent $4,850 out of pocket, you enter the Catastrophic
Phase. Here, you will pay only about 5% of the total drug costs, but with no
yearly maximum.
So how do you decide which plan to pick? If you are comfortable using a
computer, you can use a nice tool that Medicare has developed called Plan
Finder (medicare.gov/find‐a‐plan) to do your research and sign up. Plan Finder
allows you to enter a list of the specific drugs that you take and the pharmacies
that are near you. After you enter this information, it will give you a list of all
available Part D plans, including your monthly premium and an estimate of
how much you will need to pay for your drugs at these pharmacies over the
course of the year. It will also tell you if a given pharmacy is in‐network, if it
has preferred status, if your drug is on the plan’s formulary, if a generic
equivalent is available, and more. Once you have chosen a plan you can enroll
directly from Plan Finder.
One limitation is that you can only enter up to two pharmacies and compare
three plans at a time. So to find the plan that is the best fit for you, you will
need to go through the same process on Plan Finder more than once until you
find the plan and pharmacy that will offer the best value to you. But once you
go through it once it is very easy to use.
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As an example (not checked by a doctor), Jonathan takes drugs for high blood
pressure (Lisinopril), high cholesterol (Atorvastatin), diabetes (Metformin),
angina (Nitrostat) and ulcers (Nexium). He goes on Plan Finder after October
15 to enter his drug list for the coming year and sees that there are 19 PDP plans
available in Maryland. The premiums range from $18.40 to $87.10 a month,
differing by more than $800 a year. After entering various pharmacies, he sees
that his estimated drug cost can range from $1,174 per year for a plan with a $33
monthly premium (total cost of $1,570) – all the way up to $4,144 per year for a
plan with an $83.50 monthly premium (total cost of $5,146).
He now compares three of the plans side by side and sees that the reason that
some of the plans are so expensive is because Nexium is not on their
formularies, so he would need to pay the full cost on his own. Plan Finder
advises that there is a generic alternative to Nexium called Esomeprazole
Magnesium. If his doctor approves the switch, Jonathan will have a plan
available to him with expected drug costs of $1,035 per year and a monthly
premium of $33.60 (total cost of $1,438) where he can save over $130 in a year.
This is a limited example, but if you take a lot of drugs, the savings from a
careful comparison can really add up.
If you do not feel comfortable working on a computer, you can still find the
best plan available to you by calling Medicare (800‐633‐4227), or by working
with a counselor from the Maryland Senior Health Insurance Assistance
Program (SHIP). The counselor can meet with you in person or over the phone
for free to discuss your needs and find the best plan for you. The Baltimore City
SHIP office can be reached at 410‐396‐2273 and the Baltimore County office can
be reached at 410‐887‐2059.
Other Important Information
If you have a Part D prescription drug plan, it is important for you to review
your plan options each year during Open Enrollment (October 15 – December
7) even if you are satisfied with your current coverage. Premium rates, benefits,
the list of covered drugs, and your cost share can and do change each year. You
will need to make sure that your coverage continues as expected to avoid
unintended costs.
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Just because a plan is right for your spouse does not mean that it is right for
you. Companies do not offer discounts if two members of a household buy their
plan. While it may mean that you and your spouse need to have prescriptions
sent to different pharmacies, the inconvenience is a small price to pay if you
can save hundreds of dollars a year in a different plan.
Once you reach the catastrophic phase of your Part D coverage, you will only
pay about 5% of your drug costs for the rest of the year. While this does save
substantial money for people with very high drug bills, you can still end up
with a big expense, especially if you need an expensive specialty drug.
For example, there are new drugs named Sovaldi and Harvoni that were
recently developed by Gilead Sciences for the treatment of Hepatitis C. A single
pill of Sovaldi costs $1,000, and an average course of treatment costs $84,0002
.
Medicare has spent billions of dollars on these drugs alone, mostly funded by
taxpayers. (I’ll let my friends at the drug companies explain why the cost is so
high.) But if you are in Part D you will still spend a lot. Using the plan
mentioned earlier, assuming you have no costs for the year other than Sovaldi,
your out‐of‐pocket drug costs will still be close to $7,000. If you need a
specialty drug, speak with your doctor, your insurance plan, and the drug
manufacturer to see if any programs are available to help with the cost.
Medicare has a program called Extra Help that can help pay for both the
premium and drug costs of enrollees with low income and low assets. To learn
if you are eligible and to apply, contact Social Security at 800‐772‐1213 or visit
ssa.gov/medicare/prescriptionhelp. By receiving Extra Help, your benefits
under other programs like food stamps may be affected, but the financial
benefits of Extra Help will more than compensate for these reductions.
Coming Next
Until this point we have discussed the federal Medicare program and your
costs. These costs have the potential to grow quickly for someone that needs a
lot of care. In the next article I will discuss how a Medicare Supplement policy
can help to pay for some or all of your hospital and medical expenses.
2
Washington Post March 29, 2015
