Original Medicare (Part A and Part B) does not include prescription drug coverage. If you don’t want to pay out of your own pocket for prescription drugs, you will need to add Medicare Part D. Learn more about Medicare Part D and what to expect in 2021.
Medicare Part D is offered through private insurance companies, but it is overseen by the federal government. This is essentially insurance for prescription drugs. If you have Medicare Part D, you will usually only have to pay a copay for medications.
Medicare Part D works alongside Original Medicare (Part A and Part B). It is a standalone policy. However, if you have Medicare Advantage with prescription drug coverage, Medicare Part D is bundled.
If you have Medicare Part D, you will be charged an annual deductible. Until you meet your deductible, you will pay the network discount price for your prescriptions. Once your deductible is met, you will begin the initial coverage period.
When your plan’s initial coverage period kicks in, you will only be responsible for the copay. You can look at the formulary to determine how much your copay for each medication will be. Most of the Medicare Part D plans list drugs in tiers. Tier 1 contains generic drugs and offers the lowest copayment. Tier 2 contains preferred brand-name drugs and has a medium copayment. Tier 3 has non-preferred brand-name medications and the copayment is higher. The Specialty tier contains the highest cost drugs and comes with the highest copayment.
After you spend a certain amount on prescription drugs, you will enter the coverage gap, also known as the donut hole. In 2019, the coverage gap began after enrollees spent $3,820 on prescription drugs. That amount includes the money the plan and the covered party paid. Your copay will increase when you enter the coverage gap. The coverage gap has closed significantly so you will not pay nearly as much as you would have paid in the past. Now, you will not have to pay any more than 25 percent of the price of the drug when you enter the gap.
In 2019, enrollees exited the coverage gap after spending $5,100 in out-of-pocket costs. Then, they entered into the catastrophic coverage phase. At this point, people only have to pay 5 percent of the drug cost. This should continue in 2021.
While private insurance companies sell Medicare Part D, each company is required to at least provide a standard level of coverage. Plans cover brand-name and generic drugs and must provide at least two options for each commonly prescribed class and category. Most include a minimum of two drugs per category, even if the category isn’t “commonly prescribed.”
The formulary contains all the drugs allowed in the plan. In some cases, the formulary might not have a specific medication, but it will usually have a similar drug. However, if the prescriber does not think that a similar drug will work, he or she can request an exception.
Since private insurance companies sell Medicare Part D coverage, the premium amount varies. The average premium in 2019 was $33.19, but people paid more or less depending on the plan they selected.
The amount people pay also depends on their income. Individuals who make $85,000 or less and couples that earn $170,000 or less only pay the plan’s premium. However, individuals and couples who make more have an extra amount added to their premiums. This is referred to as the income-related monthly adjustment amount and it is added to the premiums.
Individuals that make between $85,001 and $107,000 pay an extra $12.40 a month. That amount goes up to $31.90 for those who make between $107,001 and $133,500. Individuals who earn between $133,501 and $160,000 a year must pay an extra $51.40 for Part D coverage. It goes up to an extra $70.90 a month for people who make between $160,001 and $499,999. Individuals who earn $500,000 or more a year must pay an extra $77.40 for Part D coverage each month.
If you are married and file a joint tax return, your income-related monthly adjustment amount will be based on how much you both make.
Couples who make $170,001-$214,000 pay an extra $12.40 a month. Those who earn between $214,01 and $267,000 have to pay an additional $31.90 each month.
If you and your spouse make between $267,001 and $320,000, an extra $51.40 will be added to your monthly premium.
Couples that earn between $320,001 and $749,000 must pay an additional $70.90 a month, and those who earn $750,000 or more are charged $77.40 more a month.
If you are married but file separately, your income-related monthly adjustment is calculated differently. If you make $85,001-$414,999, you’ll pay an extra $70.90 a month. If you make $415,000 or more, you will pay $77.40 a month.
Medicare charges a penalty for people who go 63 days or longer without Medicare Part D or creditable coverage. The penalty will be assessed when you sign up for Medicare Part D.
To calculate the penalty, the government takes one percent of the national base beneficiary premium and multiplies it by the number of uncovered months. In 2019, the national base beneficiary premium was $33.19. This amount can go up every year, so the longer you wait, the more you might have to pay. The penalty is added to your Medicare Part D premium and you have to pay it each month.
You will purchase Medicare Part D through a private insurance company. You can either do so after getting Original Medicare or you can get it through a Medicare Advantage Plan.
It is critical to compare Medicare Part D plans before making a purchase. A licensed insurance agent can help you select the right drug coverage for your needs.