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Part 1: How Medicare Part D Works

Understanding the basics

En español l Before deciding whether to sign up for Medicare prescription drug coverage, you need to understand how the program works together as a whole. Grasping the big picture makes it easier to deal with the details.

Who can get Medicare drug coverage?

Anyone on Medicare (with either Part A or Part B) is entitled to drug coverage (known as Part D) regardless of income. No physical exams are required. You cannot be denied for health reasons or because you already use a lot of prescription drugs.

Do I have to sign up?

For most people, joining Part D is voluntary. However, if you now get your drugs from Medicaid, you must get them from a Medicare drug plan as soon as you become eligible for Medicare.

You won’t need to sign up if you have other drug coverage that is better than Medicare’s — for example, benefits from a current or former employer or union. (See Do You Need Medicare Part D?)

But if you don’t have other drug coverage that’s considered as good as Medicare, and you delay signing up, you’ll incur a late penalty that adds to your premiums for as long as you’re in the program, except in certain circumstances, and you’ll be able to enroll only during open enrollment at the end of the year.

What if I don’t take any prescription drugs right now?

The same sign-up rules apply.  Part D is insurance — you buy it so that it will protect you if and when you need it.  If you don’t need any prescription drugs at the present time, enrolling in the Part D plan with the lowest premium in your area ensures that you have coverage if you suddenly need it, but at the least cost.

How do I get Medicare prescription drug coverage?

You must enroll in one of the private insurance plans that Medicare has approved to provide it. Wherever you live, you can get drug coverage in one of two ways:

  • Through a “stand-alone” plan (PDP) that offers only drug coverage. This type is mainly intended for people who choose to receive their other health benefits from the traditional Medicare fee-for-service program.

  • Through a Medicare Advantage plan (MA-PD) that covers both medical services and prescription drugs. This type is for people who choose to receive all their health care services in one package.

What will my premium be?

There is no single monthly premium for Part D prescription drug coverage.  Each drug plan sets its own premium for each calendar year.  Some Medicare Advantage plans do not charge an extra premium for drug coverage.

Does my income affect how much I pay?

It may. People with incomes over a certain level pay a surcharge for Part D drug coverage on top of their plan premiums. You pay this surcharge if your modified adjusted gross income, as shown on your latest tax returns, is more than $85,000 (for a single person) or $170,000 (for a married couple filing joint tax returns). People with these higher incomes have paid surcharges on their Part B premiums since 2007. If you’re liable for the Part D surcharge, you pay it directly to Medicare while still paying the regular premium to your drug plan.

Be aware that you may need to pay this higher-income surcharge even if your drug coverage comes from your former employer or union as a retiree benefit.  If your former employer or union receives a subsidy from the federal government for providing drug coverage, you will not be liable for the surcharge.  But if the employer/union has contracted with Medicare to provide Part D coverage — either through a Part D drug plan or through a health care plan that includes Part D coverage — you are liable for the Part D surcharge if you income is above the specified level.  Your plan administrators can tell you what kind of coverage you have.  (For more details, see “Who Pays the Part D Higher-Income Surcharge.”)  

If your income suddenly goes down due to a “life changing” event such as retirement or divorce, you can apply to Social Security (1-800-772-1213) to have both the Part B and Part D surcharges reduced or removed. 

What will I get and what will it cost?

Under the standard benefit (the minimum set by law), over the course of a calendar year, you pay:

  • A monthly premium (amount varies from plan to plan).

  • An annual deductible (no more than $320 in 2015) before coverage kicks in.

  • A share of the cost of each prescription (either a flat copay or a percentage of the cost) during the initial coverage period. This continues until your total drug costs — what you and your plan have paid — reach a certain amount ($2,960 in 2015) from the beginning of the year.

  • A percentage of costs in the coverage gap (also known as the “doughnut hole”) if you exceed the initial coverage limit. In 2015, you pay 45 percent of your plan’s price for brand-name drugs and 65 percent for generic drugs in the gap unless you have other coverage.  The doughnut hole phase ends when certain costs reach a level set by law ($4,700 in 2015). (See “Moving In and Out of the Doughnut Hole.”)

  • No more than 5 percent of your drug costs in the “catastrophic period” of coverage. This begins after you’ve reached the out-of-pocket spending limit, which gets you out of the coverage gap, and continues until the end of the calendar year.

It is important to note that your actual costs in Part D — and whether or not you hit the coverage gap — depend on the prescription drugs you take and the drug plan you choose. Also, if you qualify for Extra Help, you will have continuous coverage throughout the year (no coverage gap) and much lower costs.

Does everyone get the same coverage?

No. Each plan must offer a minimum level of coverage specified in law. But some offer better benefits, lower costs and different overall designs than the one Congress originally envisaged.

Also, you may get more coverage and pay less out of pocket if your income is limited and you qualify for Extra Help, or you are in a state pharmacy assistance program, or you have employer or union coverage that supplements Medicare.

Do drug plans vary much?

Yes. There are big differences in premiums and deductibles, in the range of drugs that plans cover, the copays they charge and the pharmacies they use. In particular, copays vary enormously among different plans, even for the same drug.  To determine exact costs and benefits, it is important to carefully compare plans in your area (see Choosing a Part D Drug Plan).

Why don’t the plans match the “norm” of the standard drug benefit designed by Congress?

Congress established a “minimum” benefit that plans had to meet or exceed. But many plans offer better deals to attract enrollees.

One source of confusion is that Congress specified that enrollees would pay 25 percent of the cost of drugs in the initial coverage period in a year. Many plans instead charge flat copays for each prescription — for example, $7, $35 or $70 depending on the drug — and sometimes these are higher or lower than 25 percent of the cost of the drugs.

Medicare officials say plans must prove that they provide the same value “on average” as the standard benefit. That average is based on the expected costs of everybody enrolled in the plan, not on individual costs. So, they say, some people will pay more and some less than the 25 percent.

How many plan choices do I have?

Dozens of different drug plans are available to you wherever you live. They include stand-alone drug plans (state-wide plans and some nationally available plans), which you would use if you're enrolled in the traditional Medicare program; and regional and local Medicare Advantage plans that combine medical and drug coverage in their benefit packages.

What will I pay for my drugs?

You could pay a different price for the same drug according to the phase of coverage that you’re in at any point during the year.

Deductible: If your plan has a deductible, you pay full price for your drugs until the deductible amount is met and coverage kicks in. “Full price” means the price your plan has negotiated with each drug’s manufacturer. This price may be less that you would pay retail at the pharmacy.

Initial coverage period: Your share of each prescription is either a flat copayment (for example, $20) or a percentage of the drug’s cost (for example, 25 percent). Most plans have three or four levels (known as “tiers”) of copays, rising in price from the least expensive generic drugs through “preferred” brand-name drugs to “nonpreferred” brands and finally to specialty or high-cost drugs.

Coverage gap (“doughnut hole”): In 2015 you pay 45 percent of your plan’s price for brand-name and biologic drugs in the gap and 65 percent for generics. Fifty percent of the discount for brand drugs is provided by their manufacturers; the rest of the discount for brand drugs and the 35 percent discount on generics is provided by the federal government. If your plan provides any coverage in the gap, these discounts are applied to your remaining costs.

Catastrophic level of coverage: Your share of each prescription is about no more than 5 percent of the cost of the drug. You would also pay a different price if you receive Extra Help or have additional coverage from elsewhere (such as retiree drug benefits or assistance from a state pharmacy assistance program).

Why does the same plan charge different copays for different drugs?

Most plans arrange their charges in “tiers.” Typically, Tier 1 is the copay for low-cost generics, Tier 2 for medium-cost “preferred” brand-name drugs, Tier 3 for higher-cost “non-preferred” brand names, and Tier 4 for very expensive or rare drugs. But some plans use more than four tiers and some use only one, charging the same percentage price for all drugs. All plans charge a percentage of the cost (typically 25 or 33 percent) for the most expensive drugs in the highest tier.

Why does one plan charge a lot more for the same drug than another plan?

Each plan negotiates the price of each drug with its manufacturer. If a plan gets a good discount on one brand-name drug but not on a competing drug used to treat the same condition, the plan charges a lower copay for the former (“preferred”) drug and a higher copay for the latter (non-preferred).

Since different plans may place the same drug in different tiers of charges varying by as much as $50 or more between tiers, it is important to compare copays (as well as premiums and deductibles) when choosing a plan.

What if I can’t afford the costs?

A special part of the Medicare drug program, known simply as Extra Help, provides continuous drug coverage at low cost for people with limited incomes and savings (see Extra Help Paying for Drugs). Some state pharmacy assistance programs offer similar or better help.

Does Medicare subsidize Part D drug coverage for everyone, or just for people with low incomes?

The federal government subsidizes coverage for everyone enrolled in any Part D drug plan. But it gives much bigger subsidies to those with low incomes (who qualify for Extra Help) and for people of any income level whose drug costs are high enough to take them to the catastrophic level of coverage in a year. The government also gives subsidies to employers, unions and others that provide retirees and active employees age 65 and over with drug coverage that is at least of equal value to Medicare drug coverage.

Are there any cost breaks for married couples?

No. Each spouse pays separate premiums, deductibles and copays for prescriptions and will reach each level of coverage according to his or her own drug costs over each calendar year. Ideally, each spouse should choose a Part D plan according to his or her own drug needs, rather than automatically signing up with the same plan.

How do I pay the premium?

You can choose to have it deducted from your monthly Social Security check or pay it directly to your Medicare drug plan by check or electronic bank transfer. (You may want to pick one of the latter options, especially if you’re likely to switch to another Part D plan at the end of the year, because Social Security doesn’t always deduct the correct amount in a timely manner.)

What does a “year” of coverage mean?

It means a calendar year, Jan. 1 through Dec. 31, regardless of when you enroll. The cycle of coverage (deductible, initial coverage period, coverage gap, catastrophic coverage) starts over each Jan. 1.

What if I join Medicare and enroll in a Part D plan partway through the year?

The cycle of coverage follows the same order (deductible, initial coverage period, coverage gap, catastrophic coverage). starting when you join the plan. There is no reduction in the deductible (if your plan has one) if you start partway through the year.

Will I be able to get all the drugs I take now?

Maybe, but not necessarily. Each plan has a list of preferred drugs it covers, known as a formulary. No Part D plan covers every prescription drug.

A plan must cover at least two drugs in each class of drugs used to treat the same medical condition. It must also cover nearly all drugs used in six classes: antidepressants, antipsychotics, anticonvulsants, antiretrovirals (for HIV/AIDS), immunosuppressants (for transplants) and anticancer drugs.

A few drugs are excluded from Medicare coverage by law. Among them are medications for fertility, erectile dysfunction, weight problems and cosmetic uses, over-the-counter drugs and certain anti-anxiety treatments (barbiturates and benzodiazepines such as Valium and Xanax). However, under a recent change in the law, barbiturates and benzodiazepines began to be covered under Part D in 2013.

Plans are allowed to change some of the drugs they cover during the year. If this affects a drug you are using, your plan must inform you of the change at least 60 days in advance, unless it has been withdrawn from the market for safety reasons.

You have the right to ask your plan to cover a drug not on its formulary by requesting an “exception” to its policy if your doctor can show that a non-formulary drug is necessary for your health.

Before granting an exception, a plan may require you to try a drug that is already on its formulary and similar to the non-formulary one you take now, to see if it is equally effective in treating your medical condition.

If a plan doesn’t cover one of my drugs, do I have to switch to an alternative drug immediately?

No. Medicare requires plans to give new enrollees a grace period of at least 30 days, during which plans must cover existing prescriptions for drugs not on their formularies. This applies both to people joining a Medicare drug plan for the first time and to people switching to a new plan after being enrolled in another. People who move into nursing homes receive a 90-day grace period.

During the grace period, it’s important to make arrangements to get the drug you need when the 30 (or 90) days are up. You can either:

  • Ask your doctor if you could switch to a similar drug that is on the plan’s formulary; or
  • Ask your doctor to request that the plan makes an exception to its policy and covers the drug for you because of medical necessity. If you win an exception, the plan will cover your prescribed drug until the end of the year.

What do “prior authorization,” “step therapy” and “quantity limits” mean?

You may see one or more of these terms applied to drugs on a plan’s formulary (its list of covered medications). Or you might be at the pharmacy trying to fill a prescription when you first find out that the drug you need comes with one of these restrictions. They are all methods that plans use to try to keep costs down or, in some case, protect patients’ health. Here’s what they mean:

  • Prior authorization means that you, with your doctor’s help, must get the plan’s approval before it will cover a particular drug (often a high-priced or very potent one). To get approval, your doctor must show why this specific medication is necessary for your health or why alternative drugs might be harmful. (Sometimes this approval is required to clarify whether the drug you are taking falls under Part D or another part of Medicare.  Drugs prescribed in the hospital are usually covered under Part A; those administered in a doctor’s office are covered under Part B; those used at home are covered under Part D.)
  • Step therapy means you must first try a generic or less expensive “preferred” drug to treat your condition to see if it works as well as the one prescribed. If it does, you (and the plan) will save money. If it doesn’t, your doctor can request coverage for the original prescription. Your doctor can also request that the plan waive this restriction if you have already tried less expensive drugs that have not proved effective.
  • Quantity limits does not mean that your supply of drugs will be cut off after a certain time or restricted to a certain number of prescriptions a year. It means that the plan will not cover more than the dosage or quantity it regards as normal to treat your condition, unless your doctor says that a higher dosage or quantity is medically necessary for you and that lesser ones have already proved ineffective.

To get your plan to waive any of these restrictions, you need your doctor to provide a statement saying why it is not appropriate in your case and why your prescribed drug is necessary for your health. If the plan turns down this request for an exception to its policy, you have the right to appeal

How do I apply for an exception?

You have the right to ask your plan to cover a drug it doesn’t normally cover, or to waive a restriction on a drug you take, for medical reasons. This process is called requesting an “exception” or a “coverage determination.” (Under a regulation that began in 2013, pharmacies should provide you with instructions on what to do if your Part D plan will not immediately cover your prescribed drug.)

To apply for an exception, call your plan to ask for its coverage determination form. You also need your doctor to provide a statement saying why the drug you’ve been prescribed is necessary for your medical condition and (in the case of step therapy restrictions) show that less expensive meds don’t work for you or (in the case of quantity limit restrictions) show that a lesser dosage or quantity is not effective for you. A form that your doctor can fill out to support your application can be obtained from your plan or downloaded from the Medicare website.

The plan must respond within 72 hours of receiving your request and your doctor’s supporting statement. (These are hours by the clock, not business hours.) If your doctor thinks that waiting this long would endanger your health, you can ask for an “expedited decision,” which the plan must respond to within 24 hours.

If the plan grants your request, the exception will remain valid until the end of the year in most cases. (In the case of prior authorization, however, the plan may require repeat requests more frequently.) If the plan denies your request, it must tell you how to pursue it to a higher level of appeal.

What can I do if my plan denies my request for an exception?

You have the right to appeal its decision. If necessary, you can pursue your case through up to five levels of appeal:

  • Redetermination — asking the plan to reconsider its denial.
  • Reconsideration — asking an Independent Review Entity to review a redetermination denial.
  • Administrative Law Judge hearing — asking an ALJ to review an unfavorable decision by the IRE.
  • Medicare Appeals Council review — asking the MAC to review an unfavorable decision by the ALJ.
  • Federal court hearing — asking a court to review an unfavorable decision by the MAC.

If your claim is denied at any level of appeal, you’ll receive instructions on how to proceed to the next level and the required time frames for requesting a review.

Anyone can help you make an appea l — a relative, friend, consumer advocate or lawyer — and, if you want, any of them can also formally represent you by preparing and presenting your case. At the higher appeal levels (Medicare Appeals Council or federal court) you’d need a lawyer familiar with the finer points of Medicare law. To find lawyers or consumer advocates who can give free or low-cost legal advice and representation, call your state health insurance assistance program (SHIP) for information on services in your area.

What about drugs that are covered by Medicare Part B?

Medicare Part B generally continues to pay for drugs it covered before Part D began — usually those that are administered at a hospital or doctor’s office. In some cases, the same drugs are covered by either Part B or Part D according to different circumstances. In this case, your Part D plan may contact you or your doctor to verify the circumstances in order to decide whether payment should be made by Part B or D.

Where can I get my prescriptions filled?

You must go to one of the pharmacies within your plan’s network, except in unusual circumstances. Going out of network will likely cost a lot more, maybe full price. Your plan must offer pharmacies within a reasonable distance from your home. Many plans also offer mail order services for 90-day supplies.

Some plans identify certain pharmacies in their networks as “preferred.” Filling prescriptions at the preferred pharmacies will likely mean that your copays will be lower than at other pharmacies in the plan’s network. But be careful to choose such a plan only if a preferred pharmacy is within a convenient distance of your home — otherwise your drugs may cost less in a different plan. 

Your plan must send you a list of its in-network pharmacies in your area when you first enroll. You can also find out which local pharmacies are in which plan networks, in advance of enrolling, by using the online Medicare Prescription Drug Plan finder tool.

How does the pharmacist know what to charge me?

You show your plan’s prescription drug card at the pharmacy (or send its number if you’re using mail order). The card should electronically access your information—whether or not you still have part of your deductible to pay, what coverage you’re entitled to, whether you have extra coverage that reduces the cost and what your copay should be.

Can I get a 90-day supply of my drugs?

Maybe. Some plans make 90-day supplies available through some retail pharmacies in their networks as well as through mail order. Contact your plan to find out.

Can I get my drugs both at a local pharmacy and by mail order under the same Part D plan?

Yes. As long as the plan offers both options (not all provide mail order), you can have your prescriptions filled from either source — for example, using mail order for 90-day supplies of drugs you take regularly, and the pharmacy for short-term meds such as antibiotics.

If I sign up for a plan, how can I be sure I’ll get my meds on day one of coverage?

Signing up during the first two weeks of the month will give the plan time to process paperwork, issue your ID card and get your details into the pharmacy computer system before your coverage begins on the first day of the following month. If the details haven’t been uploaded into the system, have the pharmacist call your plan for confirmation of your membership.

I paid full price at the pharmacy because my enrollment in a Medicare drug plan wasn’t recorded in the system. Can I get a refund?

Yes. Save your receipt and contact your plan about the refund process. (If you’ve lost your receipt, your pharmacist can probably provide a duplicate.)

How can I keep track of my drug spending?

Your plan must send you a monthly statement.

Can my plan’s charges change after I enroll?

The premium and deductible cannot change between Jan. 1 and Dec. 31. A copay may change if a drug is moved to another tier of charges. But your plan cannot charge you a higher copay than the one you first paid for the same drug during the calendar year.

Plans can change the “full price” of their drugs on a weekly basis during the year. This can affect your payments in the deductible period and the coverage gap, and also if your plan charges coinsurance (a percentage of the cost) in the initial coverage period for any drugs. It will not affect you in the initial coverage period if you pay a fixed amount (copay) for each prescription.

Plans can change all charges every calendar year. Any changes go into effect Jan. 1.

How often can I switch drug plans?

You can normally change plans only once a year during annual open enrollment, which runs from Oct. 15 to Dec. 7.

There are exceptions. In some circumstances—for example, if you move out of your plan’s area or your plan ceases services in your area, or you move into or out of a nursing home—you’re entitled to a special enrollment period (SEP) so that you can change drug plans during that time. People with limited incomes who receive Extra Help can switch to another plan at any time during the year.  For a full list of circumstances, see the Medicare Rights Center’s guidance on special enrollment periods.

What if I live in the U.S. territories?

You can join the Part D program but may have fewer Medicare drug plans to choose from. Also, the Extra Help program is different in the territories. To find out whether you qualify for financial assistance paying for prescription drugs in:

Puerto Rico: Call the Medicare Platino program at 787-294-8060 or toll free at 866-596-4747.

U.S. Virgin Islands: Call 340-774-4624 in St. Thomas or St. John, or 340-773-1311 in St. Croix.

All other territories: Call the Medicare help line at 800-633-4227

Patricia Barry writes the AARP Ask Ms. Medicare column and is the author of  Medicare for Dummies (Wiley/AARP, October 2013).

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