Medicare Part D Plans

Medicare Part D is the latest Medicare program, introduced in 2006 as part of the enactment of the MMA Act(Medicare Prescription Drug, Improvement, and Modernization Act). It provides subsidies to prescription-drug coverage for Medicare beneficiaries through various plans.

Earlier Medicare programs cover mostly hospital stays and doctor visits through Part A and Part B respectively. Later, Medicare Part C, also knows as Medicare Advantage, combines A and B for people who so choose and may offer additional benefits at higher premiums, but is not prescription drug oriented at its outset either. The new Medicare drug benefit offered by Medicare Part D intends to address, among others, the issue of forgoing medications among some Medicare recipients and also provide better affordability for all participants.

Enrollment in Medicare Part D with Different Plans

To be eligible for Medicare Part D, a participant must have first enrolled in Medicare Part B, which covers doctor visits. Plans under Medicare Part D for prescription-drug coverage are administered by private insurance companies based on rules and regulations set by the federal government. There are two basic types of Medical Part D plans: Prescription Drug Plan(PDP), a stand alone drug coverage plan, and Medicare Advantage with prescription drug coverage(MA-PD). Enrollment starts at age 65 and is voluntary, but late enrollment incurs a penalty of 1% based on an average monthly premium for all the months the enrollee did not enroll.

Out-of-Pocket Costs

The government establishes a standard benefit that a Medicare Part D plan may offer in terms of out-of-pocket expenses by a plan beneficiary in relation to deductible, co-insurance, co-payments, and coverage limits, which may adjust yearly.

In 2008 for example, the defined standard benefit called for a deductible payment of $275, after that a 25% co-insurance of the cost of a covered prescription drug up to $2,510, the so-called initial coverage limit, then after the initial coverage limit a full payment of a covered drug until the total out-of-pocket expenses, including the deductible and the initial co-insurance but not monthly premium paid, reach to another limit of $4,050, (the period in between the two limits is known as the Coverage Gap), and finally beyond the second limit in the final period, the catastrophic coverage period, a co-payment of $2.25 for generic or preferred drug and $5.65 for other drugs, or a co-insurance of 5%, whichever is greater. A catastrophic coverage period does not roll into next year; it ends on Dec. 31 and the deductible starts anew on Jan. 1

Standard benefit is the minimum benefit required of a Part D plan. Some insurance companies offer more benefits using more expensive plans with higher premiums. For a plan offering gap coverage to eliminate the Coverage Gap, premiums can roughly double those of defined benefit plans.

Other Ways of Drug Coverage

Medicare Part D does not require that plans cover all drugs at the same benefit level. To offer incentives, plans sometimes organize their drugs into tiers using a formulary based on the cost of a drug, as to whether it's preferred generic, preferred brand, non-preferred brand, or a specialty drug. Each tier is then assigned a set co-pay. The lower the tier, the lower the co-pay.

Under such a tiered benefit system, deductible and co-insurance used in the standard benefit are replaced with co-pay, which could save plan participants money if they choose certain drugs over others. But a plan's tiered co-pay amounts apply only during the initial coverage period. Once in the Coverage Gap, the rules set for the standard benefit are again followed. And the better benefit during a catastrophic period is also preserved regardless a plan’s tiered co-pay.

For more information on finding a Medicare Part D plan, use the Prescription Drug Plan Finder from Medicare, located on its website. The Plan Finder can search all plans in a certain geographic area for personalized or general results to allow comparisons of monthly premiums, out of pocket costs, drug availability, drug prices under different benefit designs, such as standard or tiered.