When it comes to planning your annual healthcare budget, costly prescription medication can make it tough to figure out. For older adults, prescription medication coverage is extremely important. According to the Centers for Disease Control and Prevention, around 24% of adults aged 65 and older have one chronic condition, such as heart disease or arthritis. Over 63% have two or more chronic conditions.1
If you choose a Medicare Advantage plan from a private insurance company, your drug coverage is likely already part of it (be sure to ask before you sign up). However, if you’re going with Original Medicare, you’ll need to purchase a separate Part D plan to get your medications covered. Below, find the six questions you should ask before purchasing a Medicare Part D plan.
Question #1: What do I have to budget for with Medicare Part D?
The total cost of a Medicare Part D plan includes several pieces. Understanding each of them can help you create a budget for your prescription medications for the year. These include:
- Your monthly premium (insurance bill)
- Your annual deductible (or the amount of money you pay out of pocket before your insurance pays the rest)
- Your coinsurance or copays on prescription medications (what you pay for your covered drugs after the deductible)
- Costs in the coverage gap (a temporary limit on what the drug plan will cover for medications)
- Costs for Extra Help (a program to help people with limited income and resources pay Medicare prescription drug program costs, such as premiums, deductibles, and coinsurance)
- Costs of a late enrollment penalty (an amount that can be permanently added to your premium for Part D drug coverage)
Question #2: What will my Medicare Part D premium cost?
The cost of your premium is related to your income and the plan you choose. If it’s above a certain limit, you’ll have to pay an amount in addition to your chosen plan’s premium. This is called IRMAA, or the Income-Related Monthly Adjustment Amount. Look at the chart below to see an estimate of how much extra you’ll have to pay:2
|File 2020 individual |
|File 2020 joint |
|File 2020 married & separate tax return||You pay each month |
|$91,000 or less||$182,000 or less||$91,000 or less||your plan premium|
|above $91,000 up to $114,000||above $182,000 up to $228,000||not applicable||$12.40 + your plan premium|
|above $114,000 up to $142,000||above $228,000 up to $284,000||not applicable||$32.10 + your plan premium|
|above $142,000 up to $170,000||above $284,000 up to $340,000||not applicable||$51.70 + your plan premium|
|above $170,000 and less than $500,000||above $340,000 and less than $750,000||above $91,000 and less than $409,000||$71.30 + your plan premium|
|$500,000 or above||$750,000 or above||$409,000 or above||$77.90 + your plan premium|
In addition to your monthly premium, you’ll need to account for the copays or coinsurance for the medications you may take. It can be helpful to have a list of your medications handy as you compare plans, as the costs of medications can add up over the course of the year.
Don’t want to do all that math on your own? Call an agent at (800) 488-7621 for help.
Question #3: Which prescription medications are covered under Medicare Part D?
All plans must cover a wide range of medications taken by people who are on Medicare, but each plan may vary in what and how much they cover. You can find a list of medications, called a formulary, that determines which specific medications are covered under that plan. That includes at least two medication options within the most commonly prescribed classes and categories.
These lists may then be further divided into tiers. The tier determines your out-of-pocket costs. For example, generic medications are often on the lowest tier and have the lowest copayment or coinsurance, while specialized prescriptions may cost more out of pocket.
In certain cases, a doctor or other healthcare provider can ask your plan for an exception so that a patient can receive a brand-name medication even if it’s not included on the list. But, you may still have to pay the full out-of-pocket cost. “[I tell my clients to] print out a list from your doctor of every medication you’re on,” says Newport. This can ensure you’re not overlooking any medication or guessing a name. With your own list, you can then figure out how your medications will be covered on each plan.
Question #4: Will I have an annual deductible for my Medicare Part D plan?
It depends on the plan, says Newport. In 2022, you won’t pay more than $480 for any Part D deductible.3 However, plan deductibles can vary greatly by plan and insurance company. So, be sure to compare deductibles alongside premiums when looking for a Medicare Part D plan.
Question #5: What is the Medicare coverage gap, and how does it affect my annual costs?
The Medicare Part D drug coverage gap, also called the “donut hole,” is a temporary change in how your prescription drugs are covered. The gap starts after you and your plan have spent a certain amount for covered prescription medications in a calendar year. In 2022, that’s $4,430.4
Once you and your plan hit this limit, you’ll pay no more than 25% of the cost of a brand-name medication out of pocket. Your plan and the drug manufacturer will cover the additional 75%. But nearly all the money that goes toward the medication—95% paid by both you and the manufacturer—will count toward the out-of-pocket spending.4
The system works a little differently for generic medications. Medicare will pay 75% of generic medication costs during the coverage gap. You still pay 25% of the cost of the medication out of pocket. What you pay out of pocket will count toward your out-of-pocket max, not what the provider pays.
“If the drug is really expensive, then you’ll need to budget for that [25% cost],” says Newport. “Sometimes, the name-brand drugs can get very expensive in the donut-hole phase. So, you always want to expect the worst when it comes to budgeting, because you never know what’s going to happen.”
Once you’ve hit the out-of-pocket limit ($7,050 in 2022), you’re out of the donut hole and in “catastrophic coverage.” This means you pay only a small copayment or coinsurance percentage for covered medications for the rest of the calendar year. While the out-of-pocket limit sounds like a lot, remember that most costs in your plan—the yearly deductible, coinsurance, copayments—count toward this total.5
Question #6: How can I save on Medicare Part D costs?
People with certain incomes and resource limits may qualify for Medicare’s Extra Help program, which can lower your premiums, dedutibles, and out-of-pocket costs. In 2022, if you make up to $20,385 in yearly income (or $27,465 for married couples) with up to $15,520 in resoures (or $30,950 for married couples), you could qualify for Extra Help.6
There are other ways, besides Extra Help, to save on medication costs. These may include:
- Talking with your doctor about generic alternatives that may be less expensive.
- Comparing plans to assess the costs of prescriptions.
- Looking into a Pharmaceutical Assistance Program, either from your state or through pharmaceutical companies devoted to helping people enrolled in Part D, that can help cover the cost of your medications, drug plan premiums, and other medication-related costs.
- Speaking with the drug manufacturer directly. “Consult your physician or the drug manufacturer and you may be able to get a supply from the manufacturer at a drastically reduced cost,” says Newport.
- Comparing pharmacy pricing. “Sometimes, you can elect for mail service, getting a 90-day supply directly shipped to you. That can save you money,” says Newport. Also, costs can vary between pharmacies, and some insurance companies have agreements with specific pharmacies, which will likely be the cheapest option, Newport adds.
Bottom line: Finding out what Medicare Part D will cost you each year, and what your medications will cost, means you’ll need to compare multiple plans in detail. A licensed agent can help you compare plans, costs, and coverage. Give an agent a call today at (800) 488-7621, or explore your options online today.