Medicare Prescription Drug Coverage

If you’re covered by Medicare, here’s some welcome news–Medicare drug coverage can help you handle the rising cost of prescriptions. If you’re covered by original Medicare, you can sign up for a drug plan offered in your area by a private company or insurer that has been approved by Medicare. Many Medicare Advantage plans will also offer prescription drug coverage in addition to the comprehensive health coverage they already offer.

Although prescription drug plans vary, all provide a standard amount of coverage set by Medicare. Every plan offers a broad choice of brand name and generic drugs at local pharmacies or through the mail. However, some plans cover more drugs or offer a wider selection of pharmacies (for a higher premium) than others, so you’ll want to choose the plan that best meets your needs and budget.

How much will it cost?

What you’ll pay for Medicare drug coverage depends on which plan you choose. But here’s a look at how the cost of Medicare drug coverage is generally structured in 2014:

A monthly premium: Most plans charge a monthly premium. Premiums vary, but average $31. (Source: Centers for Medicare and Medicaid Services.) This is in addition to the premium you pay for Medicare Part B. You can have the premium deducted from your Social Security check, or you can pay your Medicare drug plan company directly.

An annual deductible: Plans may require you to satisfy an annual deductible of up to $310. Deductibles vary widely, so make sure you compare deductibles when choosing a plan.

A share of your prescription costs: Once you’ve satisfied the annual deductible, if any, you’ll generally need to pay 25% of the next $2,540 of your prescription costs (i.e., up to $635 out-of-pocket) and Medicare will pay 75% (i.e., up to $1,905). After that, there’s a coverage gap; you’ll need to pay 100% of your prescription costs until you’ve spent an additional $3,605. (Some plans offer coverage for this gap.) However, once your prescription costs total $6,455 (i.e., your out-of-pocket costs equal $4,550–you’ve paid a $310 deductible + $635 + $3,605 in drug costs–and Medicare has paid $1,905), your Medicare drug plan will generally cover 95% of any further prescription costs. For the rest of the year, you’ll pay either a coinsurance amount (e.g., 5% of the prescription cost) or a small co-payment for each prescription.

Again, keep in mind that all figures are for 2014 only–costs and limits may change each year, and vary among plans.

Note:  Health-care legislation passed in 2010 gradually closes the prescription drug coverage gap. In 2014, if you have spending in the coverage gap, you’ll receive a 52.5% discount on covered brand-name drugs, and a 28% discount on generic drugs. Other changes will take effect in future years.

Total prescription costs in 2014What you payWhat Medicare pays
$0 to $310You pay deductible of $310 (some plans may offer lower deductibles)Medicare pays nothing until deductible is satisfied
$310 to $2,850You pay 25% of costsMedicare pays 75% of costs
$2,850 to $6,455You pay 100% of costsMedicare pays nothing
Over $6,455You pay 5% of costsMedicare pays 95% of costs

What if you can’t afford coverage?

Extra help with Medicare drug plan costs is available to people who have limited income and resources. Medicare will pay all or most of the drug plan costs of seniors who qualify for help. If you haven’t already received an application for help, you can get one at your local pharmacy or order one from Medicare.

When can you join?

Seniors new to Medicare have seven months to enroll in a drug plan (three months before, the month of, and three months after becoming eligible for Medicare). Current Medicare beneficiaries can generally enroll in a drug plan or change drug plans during the annual election period that occurs between October 15 and December 7 of each year, and their Medicare prescription drug coverage will become effective on January 1 of the following year. If you qualify for special help, you can enroll in a drug plan at anytime during the year.

Note:  Medicare beneficiaries can switch to a 5-star Medicare prescription drug plan during a Special Enrollment Period that runs from December 8, 2013 through November 30, 2014 if one is available in their area (limited to one plan change per year). A 5-star plan is one that has been rated as excellent by Medicare. Beneficiaries whose Medicare Part D drug plan fails for three straight years to achieve at least a 3-star quality rating will also be offered a special enrollment period that will allow them to move to a higher-rated plan.

If you already have Medicare drug coverage, remember to review your plan each fall to make sure it still meets your needs. Before the start of the annual election period, you should receive a notice from your current plan letting you know of any important plan modifications or additional plan options. Unless you decide to make a change, you’ll automatically be re-enrolled in the same drug plan for the upcoming year.

Do you have to join?

No. The Medicare prescription drug benefit is voluntary. However, when deciding whether or not to enroll, keep in mind that if you don’t join when you’re first eligible, but decide to join in a future year, you’ll pay a premium penalty that will permanently increase the cost of your coverage. There’s an exception to this premium penalty, though, if the reason you didn’t join sooner was because you already had prescription drug coverage that was at least as good as the coverage available through Medicare.

What if you already have prescription drug coverage?

Like many people, you may already have prescription drug coverage through the Medicare Advantage program, private health insurance such as Medigap, or your employer or former employer’s health plan. You can generally opt either to keep that coverage or join a Medicare prescription drug plan instead. If you already have other prescription drug coverage, you’ll receive a notice from your current provider explaining your options.

What happens after you join?

Once you join a plan, you’ll receive a prescription drug card and detailed information about the plan. In order to receive drug coverage, you’ll generally have to fill your prescription at a pharmacy that is in your drug plan’s network or through a mail-order service in that network. When you fill a prescription, show the card to the pharmacist (or provide the card number through the mail) even if you haven’t satisfied your annual deductible, so that your purchase counts toward the deductible and benefit limits.

What if you have questions?

If you have questions about the Medicare prescription drug benefit, you can get help by calling 1-800-MEDICARE (1-800-633-4227) or by visiting the Medicare website at www.medicare.gov. Look for information in the mail from Medicare and the Social Security Administration (SSA), including a copy of this year’s “Medicare and You” publication that will give you details about the prescription drug plans available in your area.

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

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