How to Compare Medicare Part D Plans
- Medicare Part D plans cover costs of many prescription drugs
- Most Part D plans use a tiered formulary; you pay less for drugs in the lower tiers and more out-of-pocket for drugs in the upper tiers
- There are drugs that Part D plans are not allowed to cover because they are not considered medically necessary
- There are four times during the year when you may be able to sign up for a Part D plan.
- According to CMS, the average Part D premium in 2020 is $30 and the standard deductible is $435.
The average person can choose from among 39 different Medicare plans, according to the Centers for Medicare and Medicaid Services (CMS). With so many options, it can be confusing to find the best coverage. Fortunately, when it comes to your prescription drug coverage, it’s easy to compare Medicare Part D plans.
You can find a Medicare Part D plan finder tool on the Medicare website, but before you check it out, you’ll need to know what to look for in a prescription drug plan.
Unlike Medicare Part A and Part B, which are administered by the federal government, Part D plans are offered by private insurance companies. There are many differences between each company’s Medicare Part D plans.
Part D was created in the Medicare Modernization Act of 2003 to help offset the cost of prescription drugs.
What Does Medicare Part D Cover?
Before 2006, there was no meaningful prescription drug coverage under Medicare. Part D was created in the Medicare Modernization Act of 2003 to help offset the cost of prescription drugs.
CMS establishes a baseline level of prescription drug coverage for all Part D plans approved by Medicare. Plans must cover all commercially available vaccines and all drugs in the “protected” classes which include medications such as antidepressants and anticonvulsants, as well as medications that prevent transplant rejection.
Beyond that, insurers can decide which drugs they will cover and how much they will pay for each medication. Part D plans generally cover a wide range of drugs to treat most illnesses and diseases.
For example, you may have to get prior authorization before your plan pays for a particular drug.
Understanding Your Part D Formulary
Every Medicare Part D plan uses a drug list called a formulary, which includes all of the medications the plan covers and the amount you have to pay for each.
Most Part D plans use a tiered formulary; you pay less for drugs in the lower tiers and more out-of-pocket for drugs in the upper tiers. Generic medications are usually in Tier 1 and have copays ranging from $0 to $10 in most plans.
Sometimes, plans put special conditions on certain drugs in their formulary. For example, you may have to get prior authorization before your plan pays for a particular drug. Your plan may require that you try a less expensive drug to see if it works before it will pay for a more expensive one.
It’s not uncommon for plans to place quantity limits on certain medications, which limit the number of doses you can get at one time or during a particular period of time.
Medicare Part D Formulary Tiers
|Tier 1||Tier 2||Tier 3||Tier 4|
Preferred generic drugs
Preferred brand-name drugs, non-preferred generic drugs
Non-preferred brand-name drugs
Specialty drugs and those requiring special handling or monitoring during use
What Drugs are not Covered by Part D Plans?
Although CMS gives insurers a lot of leeway in designing their plans, there are some classes of drugs that Part D plans are not allowed to cover because they are not considered medically necessary. These include:
- Weight loss drugs
- Fertility treatments
- Hair growth drugs
- Drugs to treat erectile dysfunction
- Prescription vitamins and minerals
- Over-the-counter drugs
Some Medicare Advantage plans do offer an allowance for over-the-counter medications as part of their optional expanded benefits. These benefits are offered through the Medicare Advantage plan, however, and not through Part D.
You won’t find over-the-counter drugs listed in the formulary when you compare Medicare Part D plans, so if that benefit is important to you, check for expanded benefits in your Medicare Advantage plan.
If you choose a plan without Part D, you’ll have to buy a separate Medicare Advantage drug plan.
How Do You Get Medicare Part D?
There are two ways to get your prescription drug coverage through Medicare. If you have Original Medicare (Part A and Part B), you have to buy a standalone Part D plan.
Most Medicare Advantage plans (nearly 90%) include Part D prescription drug coverage. However, if you choose a plan without Part D, you’ll have to buy a separate Medicare Advantage drug plan.
Once you choose the plan you want, you can apply with the insurance company selling the plan. You also pay your premium to the insurer, not Medicare. You can’t be turned down for Part D due to a pre-existing condition.
Medicare Part D Enrollment Periods
There are four times during the year when you may be able to sign up for a Part D plan.
- Your Medicare Part D Initial Enrollment Period (IEP) coincides with your Medicare IEP. You can buy a Part D plan at the same time you sign up for Medicare.
- You can also buy Medicare Part D during the fall Annual Election Period, which runs from October 15 through December 7.
- If you have Medicare Advantage and use the Medicare Advantage Open Enrollment Period (January 1 through March 31 each year) to switch from MA to Original Medicare, you can also buy a Part D plan at that time.
- In 2012, CMS added a special five-star election period. The term “election period” is a bit misleading, however, since it runs all year long. You can switch to a new Part D plan any time you want as long as the new plan has a five-star rating. You can check which plans currently have a five-star rating by using the Medicare Part D plan finder 2020.
Plans are free to set their own premiums, cost-sharing structures, and deductibles as long as the deductible is below the CMS maximum.
How Much Does a Medicare Part D Plan Cost?
There are three costs associated with Medicare Part D:
- monthly premiums,
- annual deductible, and
According to CMS, the average Part D premium in 2020 is $30.
CMS sets the maximum Part D deductible each year. For 2020, the standard deductible is $435.
Copayments are set by the insurance companies and there is no maximum set by CMS.
Premiums and deductibles aren’t carved in stone, however. Plans are free to set their own premiums, cost-sharing structures, and deductibles as long as the deductible is below the CMS maximum.
Over the past several years, manufacturers have been required to pay an increasing percentage of costs to close the donut hole.
Did the Medicare Part D Donut Hole Close in 2020?
Technically, the donut hole is closed, but you still pay for prescription drugs if you hit the coverage gap.
There are four stages of Medicare Part D coverage:
- Deductible: You pay 100% of your prescription drug costs until you reach your deductible
- Initial coverage: You pay your coinsurance or copayment amount for prescription drugs until you and your plan have spent $4,020 in 2020
- Coverage gap: Once you fall into the coverage gap, you pay 25% of the cost of the drug, the drug manufacturer pays 70%, and your plan pays 5%. You stay in the coverage gap until your true out-of-pocket costs reach $6,350
- Catastrophic coverage: At this stage, you pay $8.95 or 5% of the drug cost, whichever is higher, for brand-name drugs, and the greater of $3.60 or 5% of the cost for generic drugs.
Before the Affordable Care Act, Medicare beneficiaries paid 100% of the medication costs in the donut hole. Over the past several years, manufacturers have been required to pay an increasing percentage of costs to close the donut hole.
As of 2020, the donut hole for both generic and brand-name drugs has closed.
Stages of Medicare Part D Coverage 2020
|Stage of coverage||You Pay|
100% of your drug costs until you spend $435 or your plan’s deductible, whichever is less
You pay your copayment only for covered medications until you and your plan spend $4,020 on prescription drugs
You pay 25% of the cost of your medications; the drug manufacturer and your plan pay 75% until your true out-of-pocket costs reach $6,350
You pay the greater of:
$8.95 or 5% of cost for brand-name drugs
$3.60 or 5% of cost for generic drugs
Using the Medicare Part D Plan Finder 2020
When you’re ready to compare Medicare Part D plans, there are several things you should keep in mind:
- Start by making a list of any medications you take every day. You’ll want to check plan formularies to see where you can get the best deal. Also, pay attention to network pharmacies; if you have to drive 10 miles out of your way to fill a prescription, you might want to look at other options
- Some drug plans offer mail-order pharmacies, which is a great way to save on prescription drug costs. You typically have lower copayments if you fill your prescriptions by mail
- If you buy standalone Part D coverage, you pay a separate premium, but most Medicare Advantage plans include Part D, which eliminates another monthly bill. When you’re shopping for Part D, don’t forget to compare Medicare Advantage plans
- Some plans set a lower deductible than the standard $435 Part D deductible. Keep in mind, you will have a separate Part D deductible even if you choose a Medicare Advantage plan
- Remember that Medicare Supplement plans don’t work with Part D; you can’t use Medigap to pay your deductible and coinsurance costs for prescription drugs
Compare Medicare Part D Plans 2020
Most insurers release new plans and change-of-coverage notices in the fall for the upcoming plan year. The 2020 plans are generally listed in Part D plan finder tools by October, so you should already have access to the most current information for this year when you’re ready to shop.
It’s helpful to connect with a professional to narrow down your Part D plan options to find the one that works best for your needs. That way you’ll know you’re getting a complete picture of the Medicare plans in your area before you buy.
See CMS source #1 above