Medicare Prescription Coverage Under Parts B and D
By Danielle Kunkle
During our working years, we often have access to employer group health coverage that includes drug coverage. This coverage means that we can go to a pharmacy, show our health insurance card, and pay just a copay for our medication. The insurance company generally picks up the larger share.
For decades, people on Medicare did not have the same luxury. Their inpatient medications were provided for. However, from 1965 until 2005, most beneficiaries paid 100 percent out of pocket for their retail prescription drugs.
All of that changed, though, with the Medicare Modernization Act in 2003. Under this legislation, a new Part of Medicare was created. We call it Medicare Part D for drug coverage.
Let’s look at how prescriptions are handled today as a result
Medicare Part B Coverage of Drugs
Some prescription drugs are administered in a hospital or clinical setting. These are often injectable drugs, and they are common for chronic conditions like arthritis and cancer. These medications have always fallen under Part B.
Part B provides for 80 percent of the cost of medically necessary drugs administered by a physician. If you have a Medicare Supplement, you can count on that policy to provide some or all of the other 20 percent. Since drugs administered in a doctor’s office setting are often quite expensive, it’s a relief to have them covered in this manner.
Part B does not cover, however, drugs that you pick up yourself at the pharmacy. Those will fall under Medicare Part D, and what you pay for them will vary based on what stage of your Part D plan you are in.
Medicare Part D Coverage of Drugs
Medicare Part D plans were first offered for sale in 2006. These drug plans, while regulated by Medicare, are offered by private insurance companies to cover your retail outpatient prescription drugs. Each insurance company can determine its own price, pharmacy network, and drug formulary. However, there is a basic structure that can be found in all drug plans, that structure is made up of 4 stages.
Stage 1 – Deductible
Medicare itself sets the deductible each year. In 2018, that deductible will be $405. Part D insurance companies can charge the whole $405 deductible up front, or they can charge a partial deductible that is less than that. They can even waive the deductible altogether.
What they can’t do is require a deductible from you that is higher than $405.
With the deductible, you will pay the entire cost of your medications, but that price will often be discounted by your Part D company. Once you have satisfied the deductible you’ll move into the Initial Coverage stage.
Stage 2 - Initial Coverage
In the initial coverage stage, you will pay a copay for your medications based on the drug’s tier. Most drug plans have five tiers of medications, with the first tier being the cheapest medications and the fifth tier being expensive specialty medications. You pay a copay based on what tier the drug falls in.
The insurance company, however, will track all the spending. When the total drug costs reach a certain amount ($3,750 in 2018), you will fall into stage three, which is commonly called the coverage gap, or the donut hole.
The Medicare Part D Donut Hole
Stage three gets its name because it really is a hole in the middle of your drug coverage. When you reach this gap, you will pay a higher percentage of the cost of your medications. In 2018, you will pay 35 percent of the price of your brand name drugs in the gap, and 44 percent of the price of your generics.
The donut hole exists as a means of getting your cooperation in using lower cost drugs whenever possible, like generics. You will be more motivated to try cheaper drugs because you will be trying to stay under that stage three threshold and avoid the gap altogether.
Your spending in this stage will continue to be tracked. When you reach $5,000 in true out-of-pocket expenses you reach the last stage.
Stage 4 – Catastrophic Coverage
Catastrophic coverage kicks in to protect you from the kind of drug spending that can eat up your whole retirement nest egg. Once you’ve reached stage four, you now will only pay five percent of the cost of your covered drugs for the rest of the calendar year. This is arguably the most important part of any drug plan because today we have some chemotherapy drugs that are oral medications that can cost thousands of dollars per month without drug coverage.
Medicare Part D may not be perfect. People certainly don’t enjoy the coverage gap when they experience it. Nonetheless, older Medicare beneficiaries who remember the times before this coverage existed can tell you that what we have today is far better than just paying 100 percent out-of-pocket like things were before 2006.
We should note that Part D is also voluntary. You do not have to enroll in it if you do not want to, but there are penalties for late enrollment if later you decide you need a drug plan. Speak with a Medicare insurance broker to help you determine whether Part D coverage is right for you.
Danielle Kunkle is the co-founder of https://boomerbenefits.com, an insurance agency specializing in Medicare-related insurance products. They help baby boomers New to Medicare learn about their benefits and coverage options across 47 states.