What Is Medicare Part D and How Does it Work?
Medicare Part D is one of the newest benefits that Medicare has added to its ever expanding list of benefits for our Nation’s Medicare Beneficiaries.
FIRST, A LITTLE HISTORY LESSON
In 1965, when the Federal government wanted to create Medicare, they went to some of the largest insurance organizations in the country and basically said, “Y’all come up with a plan that we can use to cover our Senior Citizens for medical expenses.”
The plan they chose was the option offered by Blue Cross and Blue Shield. Blue Cross and Blue Shield gets its name from that fact that it is really two different plans in one. At least that’s the way it was in 1965. Blue Cross was coverage for Hospital bills, Blue Shield was coverage for Doctors bills. Hence, Medicare Part A for Hospital coverage, Medicare Part B for Doctors coverage. Blue Cross and Blue Shield simply applied what they were already doing to the question at hand and that’s how we got Medicare Part A and Medicare Part B.
Four things that Blue Cross and Blue Shield plans did not generally cover at the time, that virtually every older person eventually needs, are Hearing Aids, False Teeth, Eyeglasses and Prescriptions. Neither Medicare Part A nor Medicare Part B provided any benefit for those expenses, either. Why would they? They were just reincarnations of Blue Cross and Blue Shield. Of course, the politicians of the day were so eager to get this program underway, they simply glossed over this glaring discrepancy, if they even noticed it at all.
In 2006, a major change took place that corrected at least some of that in no small measure; Medicare Part D.
Medicare Part D, the Prescription Drug Plan or PDP for short, burst on the scene in mid 2006. Actually, sales of PDP policies began, if my memory serves me, in mid November of 2005 and Medicare Beneficiaries had until mid June of 2006 to enroll without having any Late Enrollment Penalty applied.
Like Medicare Part B, Medicare Part D is “voluntary”. You do not actually HAVE to sign up for it. But, if you don’t sign up when you are first eligible, and then later, decide to sign up, you won’t be able to do it until the next Annual Election Period (AEP) which is now between October 15th and December 7th of each year and it won’t be effective for you until January 1st of the year following the AEP in which you signed up.
LATE ENROLLMENT PENALTY
Moreover, you will be penalized 1% of the National Average Premium per month for each month that you were eligible but did not sign up. And, since you can only sign up during that 53 day period each year, and your next opportunity won’t be for another year, every year you fail to sign up costs you an extra 12% of the National Average Premium. And, since those premiums change each year, the amount of penalty also changes.
This amount is not paid to the insurance company you are insured with. It is paid to Social Security, usually by them withholding it from your Social Security benefit before they deposit that money in your account. You’ll never get rid of this penalty. It is forever and ever and ever.
If you signed up timely and then later dropped out, signing up at a still later date will result in Medicare considering you to never have been enrolled and you will be charged that penalty for each month since you originally became eligible, even though, for some of that time, you actually were in a plan.
So much for “voluntary”. Some people, who took no medication at all when they were first eligible, decided to wait until they needed medications to enroll and found that their strategy didn’t quite work as well as they had originally thought it would. Welcome to Socialized Medicine.
CAUTION! AND THIS IS IMPORTANT FOR YOU TO KNOW!
There are several different Election Periods. The most common are the Initial Election Period, the Annual Election Period and a Special Enrollment Period. Let’s look at these before you haul off and do something rash, like signing up for the wrong plan.
Initial Election Period
The Initial Election Period is used when you first sign up for a Prescription Drug Plan (PDP). There is actually a 7 month window for this; the three months prior to the month in which you qualify for Medicare (A or B), the month in which you qualify and the three months after you qualify. Here’s the important part: The first time you sign up, you only get one shot at getting the right plan. If you sign up for a plan and then decided you don’t like it, tough bananas. Your stuck with it until the next Annual Election Period which is always October 15th through December 7th of each year. So, make sure you get the best plan for you when you first enroll. A well qualified, experienced and honest Insurance Agent is the best person to help you with this.
Annual Election Period
As I mentioned earlier, you will have an opportunity to change the plan you are currently enrolled in every year between October 15th and December 7th. Any changes you make will not take effect until the following January 1st. However, unlike the Initial Enrollment Period, you can change your plan as many times as you want to until December 7th. Whatever plan you apply for last during that time period is the plan you will be with for the entirety of the next year. So, again, choose wisely. A little help from a good Insurance Agent can save you a lot of grief during that upcoming year. I strongly recommend it.
Special Election Period
There are certain circumstances that come up in people’s lives where they really should be allowed to change their PDP. Some of these include moving out (or moving in, for that matter) of a State or County where you resided when you originally bought your current plan if the County you’re moving into isn’t covered by your existing plan. Other events, such as going into a Nursing Home, or if the Plan you bought goes belly up, or you can demonstrate that the plan your bought was materially misrepresented to you (and you must have factual evidence to back this claim up) and others constitute a Special Election Period.
If any of these things happen to you, you will qualify for an SEP which will allow you to change to a different plan even though it is not during the Annual Election Period, October 15th through December 7th. Again, a qualified, certified and reliable Insurance Agent is your best bet to get the assistance you need.
Low Income Subsidy (LIS)
If you’re on Low Income Subsidy, you can change your plan any time of the year and as many times during the year as you wish. You are not restricted to any Enrollment Period. Your copays are lower (and can be as little as $0), you have no deductible, and you will have no Doughnut Hole, either. To see if you qualify for Low Income Subsidy, contact Social Security at 1 800 772-1213 or go online to www.SocialSecurity.gov.
TAKE PARTICULAR NOTE OF THIS
You cannot sign up for Medicare Part D through the Social Security Office. You can sign up for it on Medicare’s Website www.Medicare.gov but you will not have an agent. You will not have someone whose job it is to make sure you have the right plan for you (and, remember, there are 26 plans in Texas from which to choose), you won’t have someone whose job it is to answer all of your questions all of the time even if you ask the same question multiple times. Keep in mind that, while the Agent is compensated, he is not compensated by you. His or her services cost you absolutely nothing. Think of this like you would if you were buying airline tickets through a Travel Agent. You wouldn’t pay them, either. The airline would.
You are way better off to sign up through a private insurance company. The overwhelming majority of these plans are issued through insurance agents working for and compensated by insurance companies. Each year, those agents must take refresher courses, many done online, and pass a certification exam before they can offer those plans for the upcoming year during the Annual Election Period (October 15th through December 7th). In this way, Medicare makes a good faith effort to make sure that the agents marketing the plans are competent, able and reliable.
However, if you want a completely neutral place to go to in order to compare the 27 plans that are available in Texas for 2019, where no one has an ax to grind or a dog in the fight, go to www.Medicare.gov. In the menu line near the top of the page, place your cursor on the box entitled “Find Drug Coverage”. That will cause a drop down menu to display. Move your cursor to the second link in that drop down menu, “What Drug Plans Cover” and click there.
At the bottom of the page that the displays, click onto the link that says “Find out which plans cover your drugs”. That will bring up the Medicare Plan Finder page. Type your zip code into the box shown there and click onto the brown box labeled “Find Plans”. If your zip code covers more than one County, a pop-up box will ask you to select the County you live in. If that’s the case, click the circle next to your County and then click the Continue button.
This will bring up a page that has two questions on it that you must answer. The first question is, “How do you get your Medicare Coverage?”and gives you 4 choices. Select the choice that best answers that question and click the little circle to the left of that choice.
The second question is, “Do you get help from Medicare or your State to pay your Medicare prescription drug costs?” There are six choices and you should pick the one that best answers that question and click the little circle to the left of that choice. Then click on the brown button that says, “Continue to Plan Results”. This brings up a page entitled “Step 2 of 4” where you can enter the name of the first medication you take. This will result i a pop up that gives you the dosages that medication comes in and also allows you to pick the number of those pills you need for a 30 day supply; 30 for one per day, 60 for two per day, 90 for 3 per day and so forth. It also allows you to select whether you get that medication from a retail (brick and mortar) Pharmacy or by mail order. Once all of the requested information has been entered, press the brown button that says, “Add Drug and Dosage”.
The next page will allow you to enter the name, dosage and quantity of the next medication you are taking. Repeat the process above until you have listed every medication you are currently taking. Please be sure that you list your medications by the names shown on your prescription bottles. For example, do not list Lipitor if you are actually taking Atorvastatin. The only way you will get an accurate answer to your original query, “Which is the best plan for me?”, is to make sure you are listing the actual dug names of the medications you are taking. Once the list is complete, you will notice that Medicare’s website has put that list in alphabetical order for you. You can print it and keep it in a safe place and provide it to your Doctor any time her or she requests an updated list of your medications. You can, in fact, repeat these steps when your list of medications changes.
Once all of your drugs are listed, click on the button that says, “My Drug List is Complete” and that will display a page that lists one or more Pharmacies within the shortest distance of your Zip Code (not necessarily your home address). If you find the Pharmacy you prefer to use in that list, click onto the link that says, “Add Pharmacy” and then click onto the brown box that says, “Continue to Plan Results”.
Once you do that, a page will display that has two columns. The left hand column is very important. Look down that list until you find the third link in the list. It says, “Select Drug Options”. When you click on that link, it will display three more options. All of the options will have the preface at the top of the column that says, “Show me plans that” and then pick the middle choice, “that have all of my drugs on Formulary”.
In the right column, click onto the first choice, “Prescription Drug Plans (with Original Medicare” and then click onto the brown box that says, “Continue to Plan Results”. Then, and only then, Medicare’s website will finally show you a list of all of the Medicare Part D Prescription Drug Plans from which you can choose. Look them all over carefully comparing premiums, copays, deductibles, etc.
SO, HOW DOES MEDICARE PART D ACTUALLY WORK?
There are basically two kinds of prescription drug plans. The first, and least popular (so unpopular that none of the insurance companies are offering this type of plan for 2019), is The Medicare Standard Plan which has a deductible (in Calendar Year 2019, that deductible will be as much as $415) and then pays a percentage (75%) of your prescription drug costs until you get into what everybody seems to like to call the “Doughnut Hole” (the government calls it the “Coverage Gap” but neither name explains it clearly enough. I will try to do that later in this article). The other kind of plan is one that has copays or coinsurance cost shares for each medicine you buy until you get into the “Doughnut Hole”.
Once you get into the “Doughnut Hole” most of the plans are pretty much the same. There are some variances with regard to copay coverage for generic drugs while in the “Doughnut Hole” with some plans but, by and large, the major differences are in how they cover you before you get into the “Doughnut Hole”.
All plans must provide benefits that are at least as good as the Medicare Standard Plan. If you have this kind of a plan, you must pay 100% of the first $415 of your medications before you can get any benefits from your plan in 2019. You must also pay 100% of your premium even though you are not getting any benefits from your plan while you’re getting that deductible satisfied. It is for this reason that I’m not a particular fan of the plans that have a deductible. I fail to see the wisdom of paying an insurance premium and getting nothing for it.
Admittedly, they do save you some money on premium but I’ve yet to see a case where the money you save in premium over the course of that policy year is greater than the money you lose by having to pay that large deductible. The only possible exception to this would be if you take no prescriptions at all or you take only Tier 1 generics and/or Tier 2 generics. There are four plans offered in Texas for 2019 that, while they do have a deductible for Tier 3 , Tier 4 and Tier 5 (Brand Name and Specialty drugs) medications, have no deductible for Tier 1’s and Tier 2’s.
Then, yes, you would save money with a deductible plan. But be prepared if, suddenly, your health changes and you need to start taking one or more Tier 3 or Tier 4 medications, some of which may be expensive, you will have to pay that deductible before any benefits can be paid for your prescriptions. Don’t lose sight of the fact that this is insurance we’re talking about and, like all insurance policies, it has to be in effect before you need it. In some cases, I can agree that the gamble is worth it but, remember, it is a gamble on your part.
If that happens to you, not only do your savings dissipate because of having to pay a deductible, but you will be stuck in whatever plan you are signed up for at midnight on December 7th. Remember, you cannot change plans until the next Annual Election Period and any new plan you change to won’t become effective until the following January 1st. It just makes sense to have the right plan in place when you need it. That, after all, is how insurance works.
Actual retail cost is just that. It’s not just what you pay for your medicines and it’s not just what the plan pays for your medicines but it’s what both of you together pay for those medications.
WHAT THE HECK IS THE “DONUT HOLE”?
There’s that name, “Donut Hole”, again. Even the government’s name for it, “Coverage Gap”, doesn’t adequately describe it for you. Let me try.
First of all, you won’t even get into the Donut Hole in 2019 until the Actual Retail Cost of the prescriptions you have filled reaches $3,820. The Actual Retail Cost isn’t the amount you pay at the drug counter and it isn’t the amount your plan pays the drug store for you. It is the amount both of you pay together. If the Actual Retail Cost of the precriptions you have filled exceeds $3,820 in 2019, you will go into the Donut Hole.
Every year, there is a limit to the amount of True Out-of-Pocket expense (the government calls this your TrOOP) you can be subject to with regard to prescriptions. For calendar year 2019, that amount is $5,100. The truth is, you will never have to pay that much money, no matter how big your prescription drug expenses get. You’ll be able to see that for yourself here in just a moment.
For calendar year 2019, if you get into the “Doughnut Hole”, your plan (everybody’s plan) must pay 75% of the actual retail cost of your Tier 3, Tier 4 and Tier 5 prescriptions and 63% of the actual retail cost of your Tier 1 and Tier 2 generic prescriptions. You will pay the difference. Let me repeat that. You will pay the difference. But, remember, there is a limit to what you have to pay in out-of-pocket expenses. The money you paid for your deductible, if your plan has one, plus the money you paid for your share of your medicine expenses or the copays you paid, if that’s kind of plan you have, while you were getting to the “Donut Hole” are out-of-pocket expenses, too. That money counts towards that out-of-pocket limit.
Now, here is where it gets a little tricky but it is all in your favor. The money you pay while you’re in the “Donut Hole” is obviously an out-of-pocket expense to you. The good news is that the money you pay while you’re in the “Donut Hole” and all of the money the plan pays for you while you’re in the “Donut Hole” all counts towards that out-of-pocket limit. All of those sums are added together to meet that True Out-of-Pocket limit of $5,100 in calendar year 2019 and that’s why I say that it is practically impossible for you to pay that full $5,100 out of your own pocket.
THE CATASTROPHIC BENEFIT
So, as you can see, it will be mathematically impossible for you to actually spend anywhere near $5,100 of your own money. If you should ever make it through the “donut hole”, in other words, if your TrOOP exceeds $5,100 in 2019, you will then enter the Catastrophic Benefit phase of your coverage. From that point on, your plan, anybody’s plan, will pay no less than 95% of the cost of all of your covered medications until the end of that calendar year. On January 1st, the whole shootin’ match will start over again and, if the past is prologue, with a whole new set of numbers to learn!
Like you, I wish they hadn’t made this so difficult for folks to understand. Only a government could have come up with this sort of arrangement but this is the plan they gave us and this is the plan we must live with. It is what it is.
When you first qualify for Medicare, even if you only take Medicare Part A, the Hospital Coverage, you become eligible for Medicare Part D. This is called your IEP or Initial Election Period. You have the same 7 month window within which to enroll in a Medicare Part D Prescription Drug Plan as you have for signing up for Medicare Part B; the three months before the month in which you qualify for Medicare (Part A, Part B or Parts A &B), the month in which you qualify and the three months after you qualify.
If you are working for an employer who provides an Employer Sponsored Group Health Insurance Plan (ESGHIP) and that policy’s coverage for prescription drug expenses is at least as good as the Medicare Standard plan, you will have what’s called Other Creditable Coverage and do not have to sign up for Medicare Part D until you lose that coverage. You will not be charged a Late Enrollment Penalty for waiting in this instance. You will qualify for what’s called an SEP or Special Enrollment Period because of the loss of your ESGHIP.
When you lose that coverage, the Human Resources (Personnel) Department of your employer will provide you with a document called a Certificate of Creditable Coverage, or words to that effect, which you can show to Medicare if and when they ask for it and that document will prevent them from adding that penalty to your premium. You will have 63 days within which to enroll in a Prescription Drug Plan and that time period begins with the date you lose your group coverage at work.
There are other circumstances when you can qualify for an SEP or Special Election Period. First, if you move out of the trade territory of the plan you already have, that constitutes an SEP for you. An example of this would be if you moved to Texas from some other State. If this is the case for you, let me be among the first to congratulate you for having the good sense to move here! If you move out of Texas to another State, that also constitutes an SEP.
Another example of an SEP would be if you were to move into a nursing home. Many nursing homes have arrangements with bulk pharmacies in order to centralize the supply of medicines for their residents and improve the efficiency of managing those costs. Therefore, when you take up residence in a nursing home, you may need to change to the plan they prefer.
And, finally, Veterans of the US Military can join a Prescription Drug plan during any AEP (Annual Election Period). So long as they are already covered for medical benefits under the Veterans Administration, they will not be charged a Late Enrollment Penalty, also known as an LEP. VA coverage is considered to be Other Creditable Coverage. They can also drop out of the plan at the end of any calendar year if they wish. One cautionary note: A Veteran cannot get the same prescription filled at the VA and then get it also filled at a local Pharmacy through his or her PDP. One fill at a time, please.
Low Income Subsidy
Even though I mentioned this earlier, it bears repeating. People who qualify for Low Income Subsidy, or LIS, are free to change plans any time of the year without having to wait for the Annual Election Period. They also have no deductible to mess with, greatly reduced copays for their medications and no Doughnut Hole. In some cases, they have no premium or copays to pay at all but, for that, you’ve got to be pretty broke!
Qualification for Low Income Subsidy is accomplished through the Social Security Administration. Call 1 800 772-1213 and, once you finally get to talk with a real, live person, tell them you would like a copy of Form SSA-1020B.
You may also download that form from Social Security’s website at www.SocialSecurity.gov. When you log on to their Home Page, type the form number I just mentioned into the search box and press your enter key. You will be shown a list of documents which all pertain to that form. When I did it, the fifth one down the list was the one I needed. It’s entitled “Get A Form – The United States Social Security Administration”. Click on that title.
Then, in the box that says “Title or Number”, type in the form number again. As soon as you do, a link that says “General Instructions For Completing The Application For Extra Help” will appear. When you click onto that link, an 8 page document in .pdf format (you will need Adobe Reader, a free download, in order to open this file) will come up. You should print all 8 pages. The first 2 pages are instructions on how to complete the form. The next 5 pages are the actual application itself. The last page is a Privacy Notice and statement about the paperwork reduction act. Now, there’s a contradiction in terms if I have ever seen one!
The latest information I have on eligibility for extra help is this:
Your resources (money in the bank, stocks or bonds) cannot exceed:
- » $13,300 for an individual or
- » $23,265 for a married couple living together.
Your annual income cannot exceed:
- » $17,235 for an individual or
- » $26,580 for a married couple living together.
WHAT CAN I EXPECT TO HAVE TO PAY FOR A PDP?
In Texas, there are 27 Prescription Drug Plans available to people covered by Medicare Part A or Parts A & B together. They range in premium from $10.40 per month to $140.10 per month. The amount you pay, however, could be more than these premiums because of the IRMAA (Income Related Monthly Adjustment Amount) and any extra amount you might have to pay won’t be paid by you to the insurance company. If you are required to pay this extra amount, you will be paying it to the Social Security Administration.
What is IRMAA and What Do I Need To Know About It?
For the last few of years, Social Security has been “means testing” the premiums for Medicare Part D. They are also doing that for Medicare Part B, the part of Medicare that covers Doctors bills, Hospital Out-patient bills, ambulance bills and bills for rental of durable medical equipment such as wheelchairs. I discuss that on the link entitled “What Is Medicare Part B and How Does It Work”.
The reasoning behind “means testing” is simple. The government believes that people who make more money should pay more for their benefits. Sounds sort of fair on the surface but it should also be noted that people who have to pay this extra amount do not get any more or better medicines than anyone else. They just have to pay more for their coverage for those medications. We can debate the rightness or wrongness of this kind of thinking some other time but suffice it to say that, the more money you make, the more money you will have to pay for your government benefits even though you already paid more into Social Security than did someone who did not make as much money as you might have.
Social Security coordinates with the IRS and bases their assessment on the amount of income you reported in the tax year prior to enrolling. These figures are re-evaluated annually so your extra charge can, and likely will, change each year.
That extra amount is called the IRMAA or Income Related Monthly Adjustment Amount. The following chart is the latest information I have been able to get from Social Security and shows the additional amount that will be charged to you by Social Security depending on your Modified Adjusted Gross Income (MAGI):
|If your filing status and yearly income in 2014 was|
|File individual tax return||File joint tax return||File married & separate tax return||You pay (in 2016)|
|$85,000 or less||$170,000 or less||$85,000 or less||your plan premium|
|above $85,000 up to $107,000||above $170,000 up to $214,000||not applicable||$12.40 + your plan premium|
|above $107,000 up to $133,500||above $214,000 up to $267,000||not applicable||$31.90 + your plan premium|
|above $133,500 up to $160,000||above $267,000 up to $320,000||not applicable||$51.40 + your plan premium|
|above $160,000 and less than$500,00
$500,000 or above
|above $320,000 and less than $750,000
$750,000 and above
|above $85,000 and less than $415,000
$415,000 and above
|$70.90 + your plan premium
$77.40 + plus your plan premium
What’s The Most Important Consideration When Choosing a PDP?
One last and final point I want to make and I want you to understand that this is my personal opinion only and opinions are like noses…nearly everybody has one.
The most important variable to consider when choosing a Prescription Drug Plan (PDP) is not the premium you must pay. It is not the name of the insurance company. It is also not the amount of the deductible nor is it the amounts of the copays for the various medications you take. The most important thing to consider is the Formulary or List of Covered Drugs. You see, it really doesn’t matter if the plan you choose flat out just gives it to you at no cost whatsoever. Completely free. And it doesn’t matter if they sell you your drugs at no cost to you whatsoever. Again, completely free. If the plan you have does not cover a drug or drugs you need or, worse, may need in the future, then it is perfectly worthless to you.
Medicare gives you one 53 day long opportunity per year to get the plan you want for next year. If you find you have signed up for the wrong plan and that realization hits you after Pearl Harbor Day, too bad for you. Unless you can legitimately qualify for a Special Enrollment Period, or you are on Low Income Subsidy, as discussed earlier, you are stuck with that plan until the next Annual Election Period and, even then, any change you make won’t take effect until the following January 1st.
What’s On The Horizon?
By 2020, two things are going to happen, one of which is completely unavoidable. The number of people enrolled in Medicare will be double the number that were enrolled in 2010 because the Baby Boom Generation will have, by then, all aged into Medicare. The Medicare program is already under enormous financial pressure because it has never been properly funded. Double the load and there’s no telling what will happen.
The other thing is that CMS, the Federal Agency that oversees Medicare, has said that, by 2020, they will reduce the “Donut Hole” (CMS calls it the “Coverage Gap”) to a 75%/25% arrangement where the insurance companies will pay 75% of the cost of your medications while you’re in the “Donut Hole” and you will only pay 25%. Really?
When this Medicare Part D program started, just 10 years ago, there were some 86 plans being offered by 45 different entities, mostly insurance companies. For 2019 in Texas, there only 27 plans to choose from being offered by only 12 insurance companies. This has been such a money loser for the insurance companies that they are dropping out in droves. In Florida, there are even fewer plans available. The difference? Florida has a larger per capita Senior Population than Texas and the insurance companies are backing away from that high cost population.
Medicare, in an effort to keep as many of them in the program as they can, are allowing all of these insurance companies to charge Brand Name copays for many generic medications. The insurance companies, themselves, have almost all changed their Tier 3 and Tier 4 (Brand Name Medications) cost share from a fixed copay to a percentage of the actual retail cost of those medications. Sadly, most of the people affected by this won’t even know it until next year when they have to start paying those larger amounts at the drug counter. And, by then, there won’t be a thing they can do about it because the Annual Election Period ends on December 7th. These people will be stuck in their plan until next year.
If the insurance companies are already backing away from this coverage and structuring their plan benefits so that, in many (if not most) cases, the patients pay more for the medications than the insurance company does (is this how it was supposed to work when this Program came into being?), how can any sensible person believe that they will simply lay down and let the government dictate to them a requirement that they, the insurance companies, pay 75% of the cost of your medications while in the “Donut Hole”? We’re down to just 12 insurance companies available in Texas now. What’s it going to look like in 2020?
If they all eventually back out, Medicare will have to take this program over in full. We are already $22 Trillion in debt in this country. How will our government EVER pay for this?