The Annual Election Period (AEP) for Medicare is coming up and a big part of this annual election period is looking at and analyzing your Prescriptions. For this installment of our blog, we are going to talk through how Medicare Part D plans are structured and how to understand the different costs associated with your particular plan cost breakdown.
Every Part D plan follows this same basic structure:
- A monthly Premium: When you enroll you pay a monthly premium to the insurance carrier whose plan you have chosen. These premiums vary! They vary based on the medications that are included in their formulary.
- Deductibles: Some plans require beneficiaries to meet an annual deductible before coverage kicks in. In 2024 the maximum deductible is $545. Most plans do have this $545 deductible, however some plans with higher premiums might have lower or even $0 deductibles.
- After the deductible (if you have one) you are in your phase of Part D costs called the Initial phase. In this phase you will pay either coinsurance (a % of your drug costs) or a set copay (a dollar amount for your drug) depending on what tier each prescription falls into.
- Coverage Gap: Once you and your Insurance company have paid $5,030 in 2024 for your prescriptions you will then enter the coverage gap (Donut Hole). During this phase of your Prescription Drug plan, you may have higher copays and coinsurance. You stay in this portion of your plan until you individually have paid $8,000. After this $8,000 you will have no additional copays for the year on your plan. Bear in mind the $8,000 is not an actual number – this is what makes Part D plans even more confusing. This $8,000 does include drug manufacturers discounts so while you may reach the $8,000 threshold you don’t pay that full amount since part of your costs may include some drug manufacturers discounts. This is entirely dependent on the drugs you take!
Additional Terms to be aware of when you are looking at a part D plan are:
Drug Formulary: Essentially this is the plan’s covered medications. Each formulary does have to cover 2 drugs in each therapeutic area.
Drug Tiers: This is how a Medicare Part D plan organizes the drugs on their formulary. Each tier has different out-of-pocket costs. Many plans have five formulary tiers, but some might have more or fewer.
Drugs on low tiers have lower or even zero cost-sharing requirements, while drugs on higher tiers will generally cost you more out of pocket. Your plan won’t help at all with the cost of drugs that aren’t on the formulary, however, if you or your health care provider believe that you need a specific drug that’s not included on your plan’s formulary, you can apply for a special exception. The insurance company might grant the exception if your prescriber can demonstrate that the drug is medically necessary because the alternatives included on the formulary would be less effective or would have adverse effects.
Understanding the structure breakdown and associated costs of Medicare Part D plans can help you make educated decisions about your plan. Your agent will be able to navigate through all of this with you and recommend what plans make the most sense for you.