Before we begin let us define some key terms in regards to prescription coverage for seniors.
- Plan Formulary: A list of drugs covered by the plan. Each plan compiles its own formulary based on Medicare rules. Plans cover both generic and name-brand prescription drugs. Insurance companies are required to include at least 2 drugs for most categories and classes in their drug plans
- Tiers: Within a plan formulary the insurance company assigns each drug to a different tier. Tier 1 is usually preferred generic drugs with the lowest cost-sharing. Tier 5 is usually specialty drugs with the most member cost-sharing. The same drug can be in Tier 1 for one company’s plan, but in tier 3 for a different plan. Always review your drugs to optimize savings
- Copay– Members pay a set dollar amount per prescription (eg a $200 drug with a $10 copay would cost the member $10)
- Coinsurance: Members pay a percentage of the cost (eg a $200 drug with 20% coinsurance would cost the member 200 x .20= $40).
With that out of the way. Let’s get into the four-stages
There are two ways to get prescription drug coverage through Medicare. For those covered with Original Medicare, you will need to purchase a Part D prescription drug plan. Alternatively, you can enroll in a Medicare Advantage plan that includes prescription drug coverage. However, not all Medicare Advantage plans include prescription drug coverage. Those plans are intended for people who have eligible drug coverage from an alternate place (eg employment drug coverage, Veterans Association). Typically you can not have a stand-alone Part D prescription drug plan with Medicare Advantage.
Regardless if you are on a stand-alone prescription drug plan (PDP) or you are on a Medicare Advantage plan that includes prescription drug coverage (MAPD) you will have four stages for your drug coverage. Your prescription drug costs will change throughout the year as you move from one stage to the next.
**** Exception: Some Private Fee-For-Service (PFFS) plans ( type of Medicare Advantage plan) do not include drug coverage. In those cases, you can enroll in a stand-alone part D prescription plan.
Stage 1# Deductible
Members pay 100% of the drug costs until they reach their deductible. If the plan does not have a deductible, the member would go directly to the next stage.
Stage 2# Initial Coverage
In this stage, the plan pays most of the drug costs, but the member still pays a portion. Depending on the plan’s structure, this may be a set copay or a coinsurance of the drug costs. Some plans pay the full amount with no member cost-sharing for generic drugs on tier 1. Members remain in the “initial coverage stage” until the member and the plan collectively reach $4430 (for 2022). This is the amount set by Medicare for all plans.
Stage 3# Coverage Gap
This stage is sometimes referred to as the “Donut Hole”. While in the donut hole, Members pay 25% coinsurance for all drugs regardless if they are generic or brand name drugs. The coverage gap stage will end when the member reaches max out-of-pock costs for covered drugs. The max out of pocket for 2022 is $7050.
What costs count towards the coverage gap limit?
- Deductible, coinsurances, and copays all contribute towards the coverage gap limit. Premiums, however, do not go towards the out-of-pocket max.
- 95% of the total name-brand drug costs bought during the coverage gap go towards members’ out-of-pocket max. Any manufacturer’s discount counts towards the coverage gap total.
- Payments made on members’ behalf by a third party also count towards coverage limits. Examples of third-party payers are charities, relatives, or amounts paid by the state pharmaceutical assistance programs.
What costs do not count towards the coverage gap limit?
- Plan premiums
- Drugs not covered under the prescription drug plan
- The 75% discount on generic drugs
- Pharmacy dispensing fees
Stage 4# Catastrophic
Once the coverage gap limit is reached, members will enter the catastrophic phase. Members in this stage will pay 5% of the drug cost or $3.95 for generic and $9.85 for brand name whichever is greater. For example, a generic drug costing $100, will cost the member $5 (since in this case, 5% is more than $3.95). If the $100 drug is a name-brand drug the member will be charged $9.85 (since in this case, 9.85 is more than 5%).
Take heed when choosing a drug plan
While these stages are regulated by Medicare regardless of the plan, each plan has its own list of covered drugs and assigns different tiers to these drugs. This will affect how quickly you go through the different drug stages and how much cost-sharing the member will pay.
For this reason, it is important to understand your plan well, a great plan for one person can cost the next person an astronomical amount of money. Need help choosing a plan contact us today.
Plans change on a yearly basis and it is imperative to review current coverage to see if the updated plan will work for the following year or if you are better off in a new plan.
PDPs and MAPDs are always a one-year contract and may change formularies, preferred pharmacies, tier levels, and premiums.
Important Part D Reminders
Your drugs must be listed on the plan’s formulary (list of covered drugs) or you will have to pay the full price for the drug. If your doctor prescribes a noncovered medicine while you are already enrolled in the plan, see if he can prescribe a generic or different alternative that is covered. Additionally, you can request a formulary exception from the plan.
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Disclaimer: Views expressed by the writer are not a representation of CMS/ Medicare/Medicaid or any government entity. Never cancel current coverage until you are fully approved for the new rates.