Medicare Part D

You’ll learn: what is part d, the part d penalty, the four stages of part d coverage, how to choose a part d plan.

1. What is Medicare Part D?

Medicare helps out seniors with drug costs through the Part D Program. Part D is not included with Original Medicare, so you need to sign up for Part D separately, through a Part D plan run by a private insurance company. No Part D plan covers all drugs, and no Part D plan is accepted at all pharmacies, but all Part D plans follow Medicare regulations that ensure a minimum standard of coverage is provided by all plans.

Need answers fast? Same day bookings are now available.

2. The Part D Penalty

Like any medical insurance program, Part D only works with the right ratio of healthy and sick people in the insurance pool. The Part D penalty works much like the individual mandate did in Obamacare - it encourages healthy people to enroll in the program as soon as they are eligible, rather than waiting until they become sick.

The Part D Penalty is easy to avoid, but has a nasty way of sneaking up on people who don’t know about it. It works like this: you will have to pay the Part D penalty if at any time after your initial enrollment period you go without Part D coverage (or equivalent prescription drug coverage from another plan, such as employer or VA coverage)  for a continuous period of more than 63 days. You will pay this penalty along with your premium each month that you are enrolled in a Part D plan. The penalty is applied once you sign up for Part D, and is paid monthly as long as you keep Part D coverage; there is no way to remove it.

Social Security calculates the Part D penalty using the following formula:

(A-B)*C = Penalty

A = # of months person was eligible for Medicare Part D but not enrolled

B = Months without coverage during a person’s EIP. These months are not counted

C = 1% of the average national monthly Part D Premium (34 cents in 2018)

Let’s look at a few examples of how the Part D Penalty works

Example One: Biff.

Biff signs up for a Medicare Supplement plan during his IEP and is satisfied that he has good Medicare coverage. Then, one month after his IEP, he walks into a pharmacy to pick up his 3 month supply of cholesterol medication. He hands the pharmacist his Medicare card and his Medicare Supplement card, and is shocked to find that neither one of them covers prescription drugs!

Luckily, it is December third, and there is an insurance agent who has set up a table in the pharmacy during AEP to help people enroll in Medicare plans. Biff is able to sign up that day, and his coverage is effective January first.

Because Biff only went one month past his IEP without Part D coverage, he will avoid the Part D penalty. If he had come in a few days later and missed AEP, he would have had to wait a whole year for coverage. Lucky Biff!

Time outside of IEP without coverage: 31 days

Penalty: $0

Example Two: Linda

Linda signs up for Medicare when she turns 65, but does not sign up for part D because she is not taking any prescription drugs. Two years later her doctor prescribes a medication that is too expensive for her to pay for out of pocket. She tries to enroll in a Part D plan but learns that she does not qualify for an enrollment period, and will have to wait until AEP to sign up for a January 1st effective date.

Linda went without Part D coverage for 27 months while eligible for Medicare, however, 3 of those months were during her IEP, so Linda will only be charged a penalty for 21 months. 36 cents times 21 months is $7.56, which means a $7.56 per month penalty, which adds up to about $91 a year.

Time outside of IEP without coverage: 21 months

Penalty: $7.56/month

Example Three: Bob

When Bob turns 65, he signs up for a  Medicare Advantage plan with Part D coverage. Five years later, his plan sends him a bill for a service he thought should have been covered, and he becomes quite angry. He is so mad that he calls his insurance company right away and tells them not to continue his policy when it comes up for renewal the next year. He is not in the mood to listen to what they have to say about why he should at least keep his Part D coverage.

When AEP comes around, Bob decides not to enroll in a new plan. He spends the next six years happily enrolled in only Original Medicare, until his doctor prescribes him a new, expensive medication. Bob signs up for Part D during AEP of that year to reduce his prescription costs, and his coverage begins in January, along with his new Part D penalty.  

Bob went without Part D coverage for 74 months, none of which were during his IEP. His penalty is 36 cents multiplied by 74, which comes out to $26.64/month or $319.68/year.

Time outside of IEP without coverage: 74 months

Penalty: $26.64/month

3. the part d Coverage Stages

Now that we know how to avoid the penalty, let’s talk about how Part D coverage actually works. Your Part D coverage is divided into four stages - deductible stage, initial coverage stage, coverage gap, and catastrophic coverage.

You will pass through the coverage stages as the total amount that you and the plan spend on prescription drugs increases. Most people will stay in the deductible and initial coverage stages for the entire year, but some people with a more expensive list of medications will end up in the coverage gap or even the catastrophic coverage stage at some point. Take a look at this table to learn how the coverage stages work, and what the rules are that determine when you pass from one to another.

4. How to Select a Part D Plan

You can enroll in Part D coverage either through a stand-alone Part D Plan or a Medicare Advantage plan. Either way, your part D plan will have the same basic structure, as described above. There is no overall ‘best’ Part D plan on the market. You are looking for the one that is best for you - and that means finding the plan that will cover all of your prescriptions for the least amount of money per year. Finding this plan can be quite challenging if you don’t know how to look.

People who are enrolling in a Medicare Advantage plan that includes prescription drug coverage have more than just prescription drug costs to take into account when they are choosing a plan, but it is still crucial that they compare drug costs on the MAPD plans they are considering. Differences in drug costs between plans can be in the thousands of dollars per year, especially when brand-name drugs are involved. This can easily eclipse any savings that might come from the plan’s medical benefits.

People looking at stand-alone Part D plans only need to consider prescription drug and premium costs when comparing plans. This sounds simple, but the number of plans available in most areas makes it impossible for consumers to calculate this cost for all plans on their own.

To help everyone out, Medicare created an online tool called the ‘Medicare Plan Finder’ that can calculate total drug costs for both MAPD and stand-alone Part D plan shoppers. Anyone looking for Part D coverage should use this tool before choosing their plan.

https://www.medicare.gov/find-a-plan/questions/home.aspx

The Plan Finder is a relatively simple tool to use for those who are comfortable online. In just about 15 minutes on the plan finder, you can:

1. Make a list of Part D plans in your area

2. Remove plans that don’t cover all of your prescriptions

3. Remove plans that don’t have a convenient in-network pharmacy

4. Remove plans that have below a 3.5-star rating

5. Calculate the total yearly cost for the plans that remain (premium cost + drug cost), and select the cheapest one.

If you would like a step-by-step guide to using the Medicare Plan Finder, check out my detailed tutorial here.