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November 2013
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Medicare Part D – The Basics

Medicare Part D is the prescription drug benefit part of Medicare. Added to Medicare by the Medicare Prescription Drug, Improvement, and Modernization Act (also known as the Medicare Modernization Act, or MMA) of 2003, Medicare Part D took effect in January 2006.

Unlike Medicare Parts A and B, Medicare Part D is not provided within the traditional Medicare program. If you wish to take advantage of Medicare Part D, you must enroll yourself in one of the many Medicare Part D plans that are offered by private companies, either as a stand-alone prescription drug plan (PDP) or as part of a Medicare Part C (Medicare Advantage) plan.
If you are on Medicare, you can enroll in Medicare Part D from November 15th through December 31st every year, during the Annual Election Period. If you are already in a Part D plan, you can also change your plan during this period.

Medicare Part D Costs and Benefits

Medicare Part D establishes a standard Part D drug benefit, but plans and premiums vary widely. Companies are required to offer the standard benefit set out by law or a benefit package that is at least as comprehensive as the standard package. Although there is no standard formulary, there are minimal requirements that major classes of drugs necessary to treat common diseases are covered. Plans vary greatly as to the specific drugs covered and the co-pays/coinsurance for individual drugs. For more information on Medicare Part D benefits and the Donut Hole, see our article “Medicare Part D-The Donut Hole and Me”.

In 2009, the standard benefit included an initial $295 deductible. After meeting the deductible, beneficiaries pay 25% of the cost of covered Part D prescription drugs, up to an initial coverage limit of $2,700. Once the initial coverage limit is reached, beneficiaries must pay for the full cost of their drugs until total out-of-pocket expenses on formulary drugs reach $4,350 and the “Catastrophic Coverage” benefit begins. This gap in coverage is known as the “Donut Hole.” If you qualify for Catastrophic Coverage, you will pay $2.40 for a generic or preferred drug and $6.00 for other drugs, or a flat 5% coinsurance (whichever is greater) for the rest of the year.

Please note that these amounts (deductibles, initial coverage limit and the out-of-pocket threshold) change annually as Part D spending growth changes. In addition, if you reach the out-of-pocket threshold to qualify for Catastrophic Coverage in one year, you still have to reach the threshold again in the next year to re-qualify.

Finding a Part D Plan for You

The standard benefit only dictates the structure of the plan. It does not require coverage of any standard group of drugs, and formularies (lists of covered drugs and co-pays) may vary widely. Medicare also does not require any standard premium to be charged.

As a result, plan costs and coverage vary from plan to plan and region to region. When you enroll in Medicare Part D, it pays to shop around and research the plan options available to you based on your needs and financial resources. Because your circumstances may change, it also pays to review your plan every year and see if it is still the best plan for you.

Tags: Medicare, Medicare Part D, Prescription Drugs, Formularies, Senior Health