What is Medicare Part D? – Part 1

August 11, 2005

What is Medicare Part D?
Starting January 1, 2006, Medicare will begin to offer prescription drug plans to help with paying rising drug costs. To be eligible for Medicare Part D, you must be enrolled in either Medicare Part A or B. It is important that you understand the changes affecting your prescription drug coverage choices. If you currently have Medicaid drug coverage, you will lose it and automatically be enrolled in a new plan through Medicare. You will still have your other Medicaid benefits. There are a number of different prescription drug plans (called “PDPs”) available through Medicare Part D that are offered by private companies. Some plans will offer drugs that other plans do not so it is important to carefully select the right PDP for you to make sure that your medication is included under the plan. Information about specific PDPs will be made available starting in October 2005.

Do I have to have Medicare Part D? And if so, what will it cost me?
No, you do not have to enroll in Part D. It is completely voluntary and you may continue to keep your current prescription drug coverage (either through your employer, union, etc) if you wish. If you later decide to enroll in Part D, however, you may be faced with a late enrollment penalty.
If you decide to enroll in the basic benefit plan, there will be an approximate drug coverage premium of $37 a month. You also have to pay a $250 deductible and then 25% co-insurance for drug costs. If your drugs cost more than $2,250 for the year, you will have to pay 100% of the cost until the cost of covered drugs reaches $5,100 (called a “doughnut hole”). Therefore, beneficiaries will have to pay a total of $3600 of out of pocket costs before Medicare will begin to pay 95% of the formulary drug prices.
Only out of pocket costs for formulary drugs that are paid for by you, a family member, or another person acting on your behalf, or a state pharmacy assistance program count toward your annual out of pocket limit of $3600. Payments by other insurance (such as employer or union plans) do not count. After $5,100 in total expenses, you will receive catastrophic coverage and will only have a 5% coinsurance or a co-payment of $2 for generic drugs or $5 for brand name drugs, whichever is greater.
If you qualify for low income assistance, costs will decrease dramatically. People currently receiving Medicaid, MSP, or SSI will automatically receive low income assistance and will only pay a small co-payment for prescription drugs. Other people will be eligible for low income assistance if their income is less than 150% of the federal poverty level ($14,595/year or $19,485 for a couple) and have limited resources($10,000 or $20,00 for a couple).

What should I think about when selecting a Part D plan?
It is important to realize that all plans are not created equal. Plans are likely to vary not only in the cost but also in the type of drugs offered. PDPs are given flexibility as long as the total value of their plan is the same as the basic benefit. Therefore some plans may have higher co-payments than others while others have lower premiums.
In addition, PDPs have considerable discretion to decide which specific drugs to include on their formularies. Therefore, PDPs do not necessarily have to pay for all the drugs that are covered by Medicare Part D. If you need a drug that is not on your plan’s formulary, you will have to pay full price for the drug. Additionally, payments for non-formulary drugs will not count toward your out of pocket expenses. Each PDP also gets to decide which pharmacies to use. It is possible that a nursing home will no longer be able to receive residents’ drugs from a single pharmacy but will have to deal with a number of pharmacies since residents are likely to have different PDPs.
Plans can vary on a wide array of matters. Some plans might also include options for mail-order drugs. Additionally, plans may place limitations on the number of prescriptions per month or the number of pills allowed per prescription. Each plan may have a different procedure and steps to go through for an appeal to get your medicine because the plans are offered by a multitude of private companies rather than a single entity. Because of all the variations in Medicare Part D plans, it is extremely important to carefully choose and select a plan that meets your needs.