Unlike Original Medicare, which has existed since the 1960s, you didn’t grow up with Medicare prescription drug plans. These plans – also known as Medicare Part D – have only been around since 2006. Naturally, you may still have questions, like “do I need Medicare Part D?”
Medicare Part D prescription drug coverage is optional. In spite of this, most Medicare beneficiaries – particularly those with chronic conditions – will still want to get Medicare Part D coverage.
What Are Medicare Part D Prescription Drug Plans?
Medicare Part D is a specific type of private, government-regulated prescription drug plan that works with your Medicare coverage. You’re eligible to enroll in a Part D plan if you receive Medicare upon turning 65. You’re also able to enroll if you sign up for Medicare due to a disability. If you delay getting Part D coverage for a while because you already had a group health plan that covered prescription drugs, you can apply for Part D when your existing coverage ends.
In 2020, the average Medicare beneficiary will have a choice of 28 plans.1 Nationwide, the base premium for Part D coverage is about $32 a month. But Medicare Part D coverage details – including formularies and participating pharmacies – vary between plans. Each plan also sets its own copayments, premiums, and deductible (no more than $435 per month in 2020).
Disappearing Donut Hole
When Part D was first introduced, a coverage gap known as the “donut hole” required enrollees to pay for a significant portion of the cost of drugs once they reached an initial coverage limit.
Beginning in 2012, the nature of the donut hole changed with the introduction of discounts. As of January 1, 2020, you enter the donut hole when the total that you and your plan have paid for drugs reaches a certain level ($4,020 in 2020). From that point on, you are responsible for 25% of the cost of your drugs, until you reach catastrophic coverage. Once that phase begins, you would pay no more than a nominal copayment or 5%, whichever is greater.
Part D Is Easy to Come By
According to the Kaiser Family Foundation, over 70% of Medicare beneficiaries are enrolled in Medicare Part D prescription drug coverage. Some are enrolled through a standalone RX plan, and others through a coverage option like Medicare Advantage that includes Part D.
Is a Medicare Prescription Drug Plan Right for Me?
Most people will need Medicare Part D prescription drug coverage. Even if you’re fortunate enough to be in good health now, you may need significant prescription drugs in the future. A relatively small Part D payment entitles you to outsized benefits once you need them, just like with a car or home insurance.
You could rely on charity care or alternate drug plans, but they come without the stability and consumer protections of federally-regulated Medicare Part D plans. Government programs also provide help with Part D payments for Medicare beneficiaries with limited means.
There are a few circumstances where it doesn’t make sense to get Medicare Part D:
- If you have a Medicare Advantage policy, it may already include Part D prescription drug coverage (also called a MA-PD plan). You won’t need to look for a separate plan.
- If you have creditable coverage – equivalent prescription drug coverage like that from a large employer, TRICARE, PACE, or the VA – then you may not need Medicare Part D. You can postpone Medicare Part D enrollment without penalty for as long as you maintain your creditable coverage.
- If you’re in the end stages of a life-threatening disease and under Medicare hospice care, Medicare Part A covers medications related to the terminal condition. If you need medications for anything not related to that condition, you will need to purchase Part D coverage.
Similarly to Medicare Part B, you’ll pay an additional adjustment to your monthly Part D premium if you listed high income on your tax returns two years ago, have substantial investments, or a sizable pension. However, delaying Part D because you must pay the higher-income beneficiary adjustments can expose you to a lifelong penalty.
How and Why to Avoid Delaying Your Medicare Part D Coverage
If you go longer than two months without creditable prescription drug coverage, you’ll face a late enrollment penalty when you enroll in Medicare Part D.
The permanent late enrollment penalty is 1% of the average nationwide Part D standalone premium, multiplied by the number of months you were delayed.
|Months Delayed||Monthly Penalty||Extra Part D Payments After Five Years||Extra Part D Payments After 10 Years|
Note: the penalties were calculated based on the 2020 national base beneficiary premium ($32.74). The penalties may change when that figure increases or decreases. For more information, go to the government’s Medicare website.
For instance, if you were to delay for nine years before you needed coverage, your Part D premiums would more than double on average! After nine years, you wouldn’t have saved any money at all.
Cases for Medicare Part D Prescription Drug Coverage
With a generous non-Medicare discount drug plan, paying around $10 for a 30-day dose of 15 drugs each, you could expect to pay $1,800 per year out-of-pocket.
Common chronic conditions such as multiple sclerosis, cardiovascular diseases, and respiratory illnesses have high drug costs that make having Part D a huge relief. If you have multiple chronic conditions (which apply to seven out of 10 Medicare beneficiaries), it’s probably a good idea to get Medicare Part D drug coverage.