What is Medicare Part D?

Medicare Part D is the most recent major change to Medicare. Created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Part D provides a prescription drug insurance benefit for Medicare enrollees. Medicare enrollees may access Part D benefits by signing up for a Medicare-approved prescription drug plan offered by a private insurance company. An enrollee may also access these benefits by signing up for a Medicare Advantage plan that includes prescription drug coverage alongside medical services. In either scenario, the enrollee is required to pay the monthly premium charged by the plan and these premiums vary by insurance provider.

Each prescription drug plan has its own list of covered prescription drugs called a formulary (over-the-counter drugs like aspirin or vitamins are not covered by prescription drug plans). When choosing a plan, it is critical that you review which of your drugs are covered by the formulary. If you sign up for a plan and you use a drug that is not covered by the plan’s formulary, not only do you pay full price for the drug but also your payments for that drug are not counted toward the “catastrophic coverage” threshold for drug expenses that qualify for additional government aid. Use our tool to identify plans that cover your medications.

A standard Medicare approved prescription drug plan has a deductible period where you are responsible to pay 100% of the drug costs until the deductible amount is satisfied. In 2008, the deductible amount is $275. After a plan’s deductible is satisfied, you will pay a co-payment (or in some cases a co-insurance fee representing a percentage of the drug’s full price) for a covered drug. Some prescription drug plans waive the deductible but before signing up for one of these plans it is important to review their monthly premium to verify that the plan makes sense for your circumstances. There is a government program that assists low-income individuals with deductible and co-pay expenses. The program is known as “Extra Help” or the “Low Income Subsidy” (LIS).

After the deductible is paid, 75% of drug costs up to $2,510 in a year are covered by the prescription drug plan. If this amount is exceeded, the enrollee will pay 100% of the drug costs. This absence of benefits is often referred to as the “donut hole” or “gap.” This will continue until either a new calendar year begins or the enrollee’s out-of-pocket expenses for covered drugs exceed $4,050 within the year. In this latter scenario, the government has a program called “catastrophic coverage” to assist Medicare enrollees with excessive drug costs. As stated previously, money you spend on drugs that are not covered on your plan’s formulary do not count towards that catastrophic coverage threshold.

Some prescription drug plans offer coverage in the “gap” (i.e. the donut hole). Our tool can help you review which plans over this gap coverage and what the monthly premiums are for these plans.

The government has a variety of brochures and web pages related to Medicare Part D such as www.medicare.gov.