What is Medicare Part D and How Does it Work?

If you have a health problem that requires treatment using prescription drugs, it can work out to be quite expensive longterm. Having prescription drug coverage can be useful as it can lower the cost of buying the medication. Medicare Part D is prescription drug coverage that helps cover and offsets prescription drug costs.

Part D plans can differ depending on the plan you opt for, the drugs you choose, the pharmacy you prefer, and other criteria. Based on this, plan costs vary in terms of monthly premiums, yearly deductibles, coinsurance, copayments, and coverage gaps. In some situations, if a person falls below a certain income bracket, they may qualify for extra help to cover costs.

While Part D plans can be structured differently, there is a general level of coverage that is outlined by Medicare which plans must follow. Every Medicare drug plan has a specific list of drugs called a formulary, that includes generic and brand name prescription drugs. The formulary needs to have at least 2 drugs that belong to commonly prescribed groups. This is to ensure that people with varying health issues have access to a variety of prescription drugs. An exception to waive coverage or lessen the cost of the drug can be requested if the patient’s doctor states that they need a specific drug that is not on the current list covered by the plan.

Every plan separates drugs into “tiers” to bring down the costs. Every tier is priced differently, and usually, the higher the tier, the more the drug cost will be. In situations where a prescription requires you to take a particular drug that is priced in the higher tier by your plan, you can use the exception rule and request your plan for a lower copayment.
Plans can update or change their drug list annually as new medicines hit the market, and medical updates are released on whether certain medicines are considered safe or not.

Who is Eligible for Medicare Part D?

Only people who fulfill the criteria below can apply for Medicare Part D.

  1. People who are 65 years of age or older
  2. People with certain disabilities and who are a beneficiary of Social Security Disability Insurance (SSDI) for over 2 years or more than 24 months
  3. End-Stage Renal Disease patients who need a kidney transplant or dialysis
  4. People who are entitled to Medicare Part A and/or Medicare Part B enrollees

If a person is eligible to apply for Medicare Part D, it would be beneficial for them to do this especially if:

  1. They have a need to take prescription drugs regularly
  2. There could be a future requirement for them to take prescription drugs
  3. They do not have existing drug coverage comparable to Medicare
  4. They may not be able to afford prescription drugs in the future
  5. They do not have the means or income to currently pay for prescription drugs

How do you get Prescription Drug Coverage?

Typically, anyone who has Medicare has an option of applying for drug coverage. The two main ways:

  1. Medicare Prescription Drug Plan (Part D) – Enrollees can enjoy the benefits of this drug coverage plan by adding it to a variety of existing Medicare Plans. These include Medicare Medical Savings Account Plans (MSA), specific Medicare Cost Plans, a few Medicare Private Fee-For-Service (PFFS) Plans, and even Original Medicare.
  2. Other Medicare Plans – Coverage for drugs provided under other Medicare health plans such as Medicare Advantage Plan (Part C). If you have Medicare Parts A & B, covering hospital and medical insurance, you can join a Medicare Advantage Plan that also gives you the benefit of prescription drug coverage (Part D). These kinds of plans referred to as MA-PDs.

What is the Individual Enrollment Period?

The period during which you can enroll for Medicare Part D. It spans 7 months and begins 3 months before you turn 65 and extends to 3 months post your birthday month. In case your birthday is on the first day of the month, the enrollment period will start a month earlier and end a month earlier.

What is the Late Enrollment Penalty?

People who qualify to apply for Medicare typically also qualify for Medicare Part D. It is usually beneficial to make the most of this opportunity unless you already have existing prescription drug coverage. In case your Initial Enrollment Period (IEP) ends and you were not covered by creditable drug coverage during that period, a Late Enrollment Penalty could apply when you enroll for Medicare Part D. This will be informed to you when you join the plan and will be added to your monthly Part D premiums.

The cost of the penalty is calculated based on the amount of time not covered by Part D or other creditable drug coverage. Typically, 1% of the “national base beneficiary premium” is multiplied by the total number of months you went without coverage and added to your monthly premium. If the premium increases, the penalty also will rise.

In case you don’t want to pay the penalty or feel that it doesn’t apply, you can request a “reconsideration.” The form to reconsider your request can be filled and sent to the address contained on it within a period of 60 days from when you were informed about the penalty. Additional proof to fight your case, such as existing creditable prescription drug coverage, can also be included. However, you may still have to continue with penalty payments even if you are having your case reconsidered as this is required by law. Penalties are considered to be a part of the premium so Medicare drug plans can choose to drop you from the plan if the penalty is not paid. A decision about a reconsideration usually takes around 90 days for a Medicare contractor. An extension can be requested for and an additional 14 days if there is good enough reason to do so.

If your Medicare contractor believes you have been wrongly levied a penalty, they can explain why they think this should not be charged by detailing this in a letter to you and your drug plan. The plan can then do away with or reduce the penalty, revise the premium, and decide on the refund amount, if applicable. In case the Medicare contractor believes there is no reason to remove the penalty, they will send you correspondence detailing the same, and you will have to comply and pay the penalty.

How does one Avoid a Late Enrollment Penalty?

There are three ways to do this.

  1. Apply for a Medicare drug plan when the eligibility criteria are first met, even in the absence of prescription drug coverage in the past.
  2. Ensure that you don’t allow 63 or more days to pass before you get creditable drug insurance or a Medicare drug plan. This includes drug coverage from a range of providers including a present or ex-employer, health insurance, TRICARE, Department of Veterans Affairs, or Indian Health Service. It is essential to ensure that this coverage is creditable each year and have proof confirming this.
  3. If you have had creditable drug coverage for over 63 days or more, you would need a record of proof to show Medicare. This record may be needed when completing a form to sign up for a Medicare drug plan to prove your drug coverage history. In case Medicare doesn’t know about the coverage, there could be a chance that they could impose a penalty.
  4. In some instances, if you are eligible for Extra Help due to your income status, you may be excluded from paying the penalty.

How does Medicare Part D work with Existing Insurance?

Employer or Union Health Coverage – Health insurance offered to you, your spouse or family member through a current, ex-employer, or union. If you are covered by prescription drug coverage under this, you need to check if it is creditable. Keep in mind you may lose these health coverages when you join a Medicare Part D plan.

COBRA – If you have COBRA, possess creditable prescription drug coverage, and have Medicare Part B, you could have the opportunity of applying for Medicare Part D after COBRA ends. You could forego any penalty and qualify for the special enrollment period.

Medicare Supplement Insurance (Medigap) policy with prescription drug coverage – If the existing drug coverage you have isn’t credible, you could land up paying more for Medicare Part D later. Typically, when you join Medicare Part D, your prescription drug coverage from Medigap will be removed, and the premiums will be adjusted accordingly.

Medicaid – To cover the cost of prescription drugs, you will need to join Medicare Part D. If Medicaid covers you, and you are a nursing home resident, your prescription drugs are also covered. However, even with full coverage, if you are an assisted living or a residential facility resident, you may be required to make a small copayment for each drug. In case you are not on a drug plan, Medicare will make you part of one so you are covered every single day. You can change plans any time you want.

Supplemental Security benefits – If state Medicaid programs help in meeting your Medicare payments, you will need to cover drug costs by enrolling in a Medicare Prescription Drug Plan. This may qualify you for Extra Help to offset the drug costs.
State Pharmaceutical Assistance Program – How this program affects Medicare prescription drug coverage will differ from state to state. While some states offer extra coverage when you have Medicare Part D, some offer assistance with prescriptions.

Long-term care facility – These kinds of facilities work with Medicare Part D to ensure their residents have drug coverage. If you are staying in a nursing home or leaving one, you can choose a Medicare drug plan that works with the nursing home’s pharmacy.

HUD Housing Assistance – It would be beneficial to join Medicare Part D if you receive housing help from the Department of Housing and Urban Development. If you are eligible for Extra Help, your housing assistance may be lowered. However, it would be balanced by the costs of your prescription drugs being met.

Food Stamps – It would be useful to join Medicare Part D if you receive food stamps. If you qualify for Extra Help, you may get fewer benefits from food stamps but additional assistance from Extra Help to counter it.

Health Insurance Marketplace – Operated by either the Federal or State government, this is a service that enables people to buy health insurance at affordable prices. Typically, it’s against the law to sell a marketplace policy if you have Medicare. If you require drug coverage, you will have to sign up for Medicare Part D.

How does Medicare Part D work with Creditable Prescription Drug Coverage?

Federal Employee Health Benefits (FEHB) Program – These plans usually have a component that covers drug costs. If you join Medicare Part D, you can stay with your existing policy, and it will detail which party will cover your expenses first.

Veterans’ Benefits – Veteran Affairs may offer prescription drug coverage, but if you also have Medicare Part D, you may not be able to use both insurance plans to cover the same prescription.

TRICARE (military health benefits) – TRICARE beneficiaries who qualify for Medicare Part A are also usually required to have Medicare Part B to have TRICARE drug cost coverage. This way, you don’t need Medicare Part D. However, if you join a Medicare Advantage Prescription Drug Plan, both plans can work together to offer you certain benefits.

Indian Health Services – There are many ways in which the Indian health facilities work together with Medicare Part D to offer you benefits to cover prescription drug costs. If you get Medicare Part D, the plan can help by paying the facility to cover your drug costs.

While Medicare Part D has many advantages, check how it works with existing insurance to see what kind of benefits you are entitled. To understand your options better, talk to a plan provider who can make a comparative analysis to see what works best for you.

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