Making a Decision: Some things to consider when deciding on prescription drug coverage
By: Source: AARP Bulletin Today Date Posted: 2005-11-15
Don’t dismiss Medicare drug benefits out of hand—even if you already have good coverage. First consider all the angles.
To learn even more about how the new Medicare drug benefit works and to order AARP's free educational guides to the benefit, visit AARP.org's special Medicare Prescription Drug Coverage section.
Do I need Medicare drug coverage?
If you use few or no drugs now, you may wonder if it's worth signing up. But what about the future? Like all insurance, Medicare coverage protects you against high drug costs if and when you need it.
Can I wait and sign up later when I need coverage?
Yes, but there may be a financial penalty if you want to enroll later than when you were first eligible. For people on Medicare now, that means between Nov. 15, 2005, and May 15, 2006.
What is the late penalty?
At least an extra 1 percent of the national average premium will be added to your premium for each month that you delay, and you will pay the penalty (which increases each year along with the average premium) for as long as you have Medicare drug coverage.
Are there any exceptions?
Yes. If you have other drug coverage that is at least as good as Medicare's and you lose it at a future date, you would not pay a late penalty if you then enroll in a Medicare drug plan within 63 days of losing that coverage.
Jean Hellyar
Southbury, Conn.
Now has medigap coverage
An interior designer, Jean has a Plan J medigap policy that pays $3,000 of her annual $8,500 drug costs after she has paid a $250 deductible.
If she drops the drug coverage from this policy and replaces it with standard Medicare drug coverage, she will save $2,462 next year. Medicare will cover $4,730 of her costs—$1,500 in the initial coverage period and $3,230 at the catastrophic level—after she’s paid a $250 deductible. She’ll also save $732 on premiums. If she chooses a Medicare drug plan with a lower premium and deductible, she’ll save even more.
Related Questions:
- How do I tell if my current coverage is better or worse than Medicare's?
- What if I have veterans or military retiree drug benefits?
- What if I have individual insurance that I buy myself?
What if I have drug coverage from my job or retiree benefits?
Your current or former employer or union must tell you if your present plan will change as a result of Medicare drug coverage. Among their options, they can:
- Continue your current coverage. If so, check to see if it is as good as Medicare's.
- Offer coverage through a new Medicare drug plan. You must enroll in this to keep your employer's coverage.
- Offer drug coverage that adds to Medicare's by paying some or all of your out-of-pocket expenses.
- Drop coverage—maybe helping toward the cost of your Medicare drug premiums or giving no help at all.
How do I tell if my current coverage is better or worse than Medicare's?
Your employer, union or any other third party that helps pay for your drugs must inform you by Nov. 14, 2005, whether your coverage is "creditable"—that is, at least as good as the standard Medicare drug benefit. If you don't receive this information, call and ask for it in writing.
If your coverage is creditable, you need do no more. Even so, if your income is limited enough to qualify for Extra Help, compare those benefits with what you have now.
If your coverage is not creditable, you can still keep it. But if you sign up for a Medicare drug plan at some future date, you would then pay a late penalty.
Caution: Most employer/union prescription drug coverage comes as part of a health benefits package. If you join a Medicare drug plan and drop your current drug coverage, you might also lose coverage for your medical services and you may not be able to get those benefits back. Contact your employer/union benefits administrator to make sure of the consequences before you make any decisions.
What if I have medigap coverage?
If your medigap policy (also known as Medicare supplement insurance) does not help pay for drugs, it won't be affected by Medicare drug coverage. If your policy does cover drugs, these are your options:
- You can keep it, but you cannot also have Medicare drug coverage. Most medigap policies (including the standard H, I and J plans) do not offer drug coverage as good as Medicare's. So you'd most likely pay a penalty if you later switch to a Medicare drug plan.
- You can keep your policy but drop its drug coverage (or switch to a different medigap policy that does not cover drugs) and instead get your drugs through a Medicare plan. Your medigap premium would be reduced.
Note: You cannot use medigap to pay out-of-pocket costs in Medicare drug coverage. No new medigap policies covering drugs will be sold after Jan. 1.
What if I have veterans or military retiree drug benefits?
Drug coverage from the Department of Veterans Affairs health system and the TriCare program for military retirees and their dependents is currently better than Medicare's. You will not pay a penalty if you later lose this coverage and switch to a Medicare drug plan within 63 days. But if your income is low enough to qualify for Extra Help, it is worth comparing those benefits with what you have now.
Donna and J.R. Walton
Lillian, Ala.
Her costs are high; his are low
Forced to retire early after a stroke, Donna, 59, spends $2,000 on drugs annually—all she can afford of the $18,500 worth of drugs her doctor prescribes. J.R., 69, spends only $600 for a few heart medications.
Under the standard Medicare benefit, J.R. would spend $722, or $122 more than he does now.
If Donna could afford to spend $3,600 and trigger catastrophic coverage, she could buy all her drugs and save $13,846. On her current budget she would pay $1,616 to receive $3,116 worth of drugs before hitting the coverage gap under standard Medicare. A higher-premium plan that fills in the gap would help her more.
What if I have individual insurance that I buy myself?
You can keep this type of insurance (nonmedigap, nongroup) that covers drugs and be in a Medicare drug plan, too. Your insurer must notify you whether your current coverage is "creditable" or not.
Related Question: How do I tell if my current drug coverage is better or worse than Medicare's?
If it is not creditable and you don't join a Medicare drug plan when you are first eligible, you will incur a late penalty if you join a plan in the future.
Related Question: What is the penalty for late enrollment?
If you do join a Medicare plan, you could use your individual insurance to supplement Medicare coverage. But any payments made by your insurer for drugs in the coverage gap would not count toward your out-of-pocket limit that triggers catastrophic coverage.
Related Question: What counts toward my $3,600 limit?
What if I get drugs from a Medicare Advantage plan?
Your plan will tell you what changes will be made in 2006. You can continue in this plan—but it's worth comparing it to others available in your area. In 2006 there will be many more MA plans offering competitive rates and benefits.
Related Questions:
- How will I know what different drug plans offer?
- How do I compare "stand-alone" plans with Medicare Advantage (MA) plans?
What if I now get my drugs from abroad?
Buying drugs from Canada or other countries might cost less than Medicare drug coverage. But consider:
- If your income is limited and you qualify for Extra Help, you would save far more than by buying from abroad.
- If your drug costs become very high, Medicare's catastrophic coverage would give greater protection than low foreign prices.
- Drugs from abroad do not count as "creditable" coverage. So if your foreign supplies dry up and you join a Medicare drug plan later than when you first could, you'd pay a penalty.
Related Questions:
Note: Medicare plans will not cover drugs purchased from abroad. Can you use such drugs in the coverage gap? You can—but be aware that those costs will not count toward your out-of-pocket limit that triggers catastrophic coverage.
Related Question: What does not count toward my limit?
What if I'm in a state pharmacy assistance program?
It may coordinate with Medicare drug coverage to give you greater savings. Check with your state program. Or contact your state health insurance counseling program (SHIP) for free help [see For More Help]. If you now get your drugs through Medicaid, you qualify automatically for Extra Help [see Extra Help Paying for Drugs].
What if I get free drugs from a drug manufacturer's patient assistance program?
You can still do so and have Medicare drug coverage too—as long as the manufacturer's program continues this help for people on Medicare. Check with the company.
What if I now have a Medicare drug discount card?
You can use this card only until May 15, 2006, or until you sign up for Medicare drug coverage, whichever is sooner. The TogetherRx card—a commercial card that gives people on Medicare discounted drugs made by several manufacturers—cannot be used after Dec. 31, 2005.
In and Out of the Doughnut Hole
The coverage gap in the middle of the standard drug benefit works like this: Once your total drug costs (what your plan has paid plus your deductible and copays) exceed $2,250, Medicare will cover no more in the year until you've spent $3,600 out of pocket. When you reach this limit, catastrophic drug coverage kicks in automatically and your plan will pay 95 percent of your remaining costs until the end of the year.
Will everyone fall into the gap?
No. People whose drugs cost no more than $2,250 in 2006 will avoid it. For people who qualify for Extra Help [see Extra Help Paying for Drugs], there is no gap. People with extra coverage from a state pharmacy assistance program or employer/union benefits may be covered for all or part of the gap. Also, many Medicare drug plans will offer coverage during the gap, often for a higher premium.
Related Question: Should I consider a drug plan with extra coverage?
How do I get drugs during the gap?
You can continue to get them through your plan at the discounts it has negotiated. Your plan will track your expenses so they count toward the $3,600 limit. In the gap, you may find drugs that are less expensive than your plan charges. You can buy these if you wish-but, under Medicare rules, only drugs purchased at pharmacies within your plan's network count toward the $3,600 limit.
What counts toward my $3,600 limit?
Your deductible; your copays; what you spend on drugs out of pocket during the gap; and any payments for your drugs made by a family member or friend, a charitable group or a state pharmacy assistance program. In all cases, only payments for drugs your plan covers (including any "exceptions" you receive) and are purchased from a pharmacy in your plan's network count toward the limit.
What does not count toward my limit?
Your premiums; payments for drugs not covered by your plan or bought at a pharmacy outside your plan's network; payments made by your plan, by an employer, union, federal agency or other group insurer; and any drugs bought from Canada or other foreign countries.
Can I delay reaching the gap?
Yes. Using lower-cost drugs will make your initial coverage last longer. Ask your doctor if generics or less-expensive brand-name drugs would work just as well as the ones you now take. Choosing these drugs could also reduce your copays. (For information on how similar drugs compare in effectiveness visit AARP.org's special drug database or go to the Consumer Union's site crbestbuydrugs.org.)
How will I know where I am in relation to the gap?
The monthly statement you receive from your plan must include this information.
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