Prescription Drug Plans the Basics

green and blue line

A Medicare Prescription Drug Plan (PDP), also known as Medicare Part D, adds prescription drug coverage to Original Medicare Parts A and B. It was introduced by the Medicare Prescription Drug, Improvement Act of 2003.

Administered by private insurance companies, all Part D plans are approved by Medicare. These plans will vary in the drugs they cover as well as cost.

Beneficiaries who enroll in Medicare Part D typically pay a monthly premium, annual deductible and per-prescription cost-sharing.

Medicare Part D  Standard Benefits

Part D Prescription Drug Plans must cover at least the Medicare Part D standard benefit or its actuarial equivalent. For 2016, the beneficiary is required to pay:

  • $360 deductible
  • 25% of prescription drug costs between $360 and $3,310 = $738
  • Part of the costs in the “Coverage gap”.
  • Nominal costs under catastrophic coverage: Once beneficiary expenditures (including drug manufacturer discounts) reach a total of $4,850, the beneficiary is past the coverage gap and reaches catastrophic coverage. On any future prescriptions, the beneficiary pays either a co-pay of $2.95 for generic drugs or $7.40 for brand name drugs or a co-insurance of 5%, whichever is greater.

Standard Medicare Part D Benefits for 2016

Medicare Part D Chart

To determine when a member moves from one stage to the next, the plan keeps track of the members TrOOP (True Out-of-Pocket) costs. Any money spent during the Deductible, Initial Coverage, and Coverage Gap stages count towards the TrOOP. The monthly premium does not count toward the TrOOP.

Although you’ll only pay 45% of the brand-name drug price in 2016, 95% of the price, what you pay plus the 50% manufacturer discount payment will count as out-of-pocket costs. This will help you get out of the coverage gap.

The amount beneficiaries pay while in the coverage gap decreases by a small percentage each year until 2020 when they will be responsible for only 25% of brand and generic drug costs.

Part D Income-Related Monthly Adjustment Amount (Part D IRMAA)

As of January 1st, 2011, you could pay more for your monthly Part D premium based on your income. In addition to the monthly payments to your PDP provider, you will have to pay an additional premium directly to Medicare if your annual income two years prior was over $85,000, or over $170,000 if you are married and filing jointly.

Buying a Prescription Drug Plan

PDP’s can only be purchased at certain times of the year. The most common are during the Annual Enrollment Period (AEP). This occurs from October 15th through December 7th. Another time is three months before the first day of the month in which you turn 65. Consult your agent or for other periods of eligibility.

If you choose not to purchase a Part D plan when you are first eligible, there is a permanent premium penalty of 1% of the national standard premium for every month that you could have had Part D coverage or equivalent creditable coverage.

Many Medicare Advantage plans offer Part D coverage. These plans are known as MAPD’s. If you have a Medicare Advantage plan be sure to check if you have prescription drug coverage before you enroll in a Part D plan. If you already have coverage, you will be disenrolled from your Medicare Advantage Plan and returned to Original Medicare.

If you are currently taking medication, compare the different Prescription Drug Plans based on your specific needs.

Before making a final decision, Medigap Planners highly recommends speaking with one of our licensed agents. We can help determine your eligibility and needs.