What is Medicare Part D (Prescription Drug Coverage)?

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Since 2006, Medicare Part D coverage has been administered by approved private insurance companies to provide prescription drug coverage for Medicare beneficiaries. Medicare Part D coverage is available to persons covered by Original Medicare (Parts A and B) and as part of many Medicare Advantage (Part C) plans.

Medicare Part D Eligibility

Anyone already covered by Original Medicare (Parts A and B) or a Medicare Advantage (Part C) plan is eligible to enroll for coverage under Medicare Part D. Current Medicare enrollment is required for eligibility under Medicare Part D. Income and medical conditions are not considered in Medicare Part D eligibility.

Medicare Part D Enrollment

Medicare Part D coverage is provided by private insurance companies contracted with Medicare, and Medicare beneficiaries enroll by contacting the plan they wish to enroll with directly. There are enrollment period restrictions and a late enrollment penalty can apply. Applicants should expect to provide their Medicare number and effective dates of coverage when enrolling with a Medicare Part D provider.

Stand-alone Medicare Prescription Drug Plans (PDPs)

Private insurance companies contracted with Medicare offer Prescription Drug Plans (PDPs) that provide prescription drug plans as an add-on coverage to Original Medicare (Parts A and B) coverages.

Prescription Drug Coverage As Part Of Medicare Advantage Plan (Part C) Coverage

Medicare Advantage (Part C) plans can include Medicare prescription drug coverage as part of the comprehensive Medicare Parts A and B coverage provided along with other benefits under a Medicare Part C plan. Persons who are eligible to enroll with a Medicare Plan C plan can select from plans that include Medicare Part D coverage for medications.

Medicare Part D Coverage

Every Medicare Part D plan is required by law to provide a base level of prescription drugs. Beyond the base level, plans can add additional drugs to the list of covered medications. The list of covered drugs under a plan is referred to as the “formulary” of the plan.

Pharmacy Safety Rules and Cost Restrictions

Medicare Part D plan administrators place safety and cost restrictions on the process of filling prescriptions. Plans may require that prescriptions be filled by pharmacies that are in the plan’s network. Additionally, Part D plans may impose other restrictions, including:

Prescription and Refill Limits

Plans may limit how much medication can be purchased with a single prescription or how often refills can be obtained. When amounts are needed in excess of plan limits, a treating doctor normally must file an exception with the plan administrator.

Plan Approval of Prescriptions

Plans usually require that a treating doctor obtain approval before a prescription may be filled. When drugs are especially expensive, doctors may be required to explain why the drug is necessary and alternative medicine would not be effective or safe.

Step Therapy

Medicare Plan D plans may require alternative medications before more expensive medication is provided. When alternative treatments are not effective, a treating doctor may file exceptions with the plan administrator to explain why a more expensive drug is necessary.

Medicare Part D Premiums

Medicare Part D plans charge different monthly premium amounts that are approved by Medicare for different coverage levels and copayment percentages applied to prescription costs. Medicare Part D plan administrators can be authorized to receive payment for monthly premiums through deductions from monthly Social Security payments.

How Income Affects Medicare Part D Premiums

For persons with adjusted gross income above certain levels, Medicare may add an income-based premium adjustment. The determination is made based on information provided to Social Security by the IRS, and any additional premium owed is paid directly to Medicare and not to the Medicare Part D plan administrator.

Medicare Part D Deductibles, Copayments, and Coinsurance

There are four annual stages of Medicare Part D coverage that affect out-of-pocket costs for prescription drug coverage:

Annual Deductible

The annual deductible is adjusted each year by Medicare. In 2019, the Part D coverage deductible is $415. Individual Medicare Part D plans may charge the full deductible, a partial amount, or none of the deductible. Until the applicable deductible is reached, covered persons pay the network discount price that the plan pays for covered prescriptions.

Initial Coverage

After the annual deductible has been reached, covered persons make a copayment for prescriptions based on the type of drug that is paid for. Lower copayments might apply to prescriptions for generic drugs. Medicare tracks the amounts of copayments made annually until the initial coverage limit is reached. The initial coverage limit includes all amounts paid by the Medicare Part D drug plan and the covered person. In 2019 the initial coverage limit is $3,820.

Coverage Gap

After the Initial Coverage limit is reached, beneficiaries pay for prescription drugs at discounted rates until the gap spending limit is reached. In 2019, the gap spending limit is $5,100. This limit includes only the amounts paid by beneficiaries out of pocket.

Catastrophic Coverage

When a Medicare Plan D beneficiary has spent the gap sending limit during a year, the Medicare Part D plan covers 95% of all prescription medication costs for the remainder of the year.

Other Medicare Coverages

Medicare Part D involves prescription drug coverage in addition to Original Medicare coverage under Medicare Parts A and B. Medicare Part C (Medicare Advantage) plans usually include the drug coverage provided by Medicare Part D. Click the links below for more information on the other parts of Medicare coverage.