Smart Benefits: Medicare Part D Deconstructed - Jim Soucy
Jim Soucy, Business Contributor
Smart Benefits: Medicare Part D Deconstructed - Jim Soucy
While many seniors simply renew their existing plans every year, it’s a good idea to compare coverage options annually to see if there are ways to save on prescription medications.
But before eligible participants shop around, it’s important to understand the phases of Medicare Part D since it works differently from prescription drug coverage provided through most job-based or Affordable Care Act health insurance plans.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTHere are the four phases of Medicare Part D prescription drug coverage seniors need to know about.
Phase One: Deductible Phase
Many, but not all, Part D plans feature an annual deductible. During this phase, participants may pay as much as the entire cost of prescriptions. Some plans may provide additional coverage for generic drugs during the Deductible Phase while others may not.
The maximum annual deductible for 2021 is $445. Some higher premium Part D plans may have a lower or even no annual deductible.
Phase Two: Initial Coverage Phase
During the Initial Coverage Phase, members can technically pay as high as 25% coinsurance of the negotiated retail price for prescriptions, although many Part D plans offer lower coinsurance or even flat co-pay amounts which will vary based upon the “tier” of the particular drug.
Medicare Part D plans have stated formularies (list of the drugs covered under the plan) which will indicate what tier a particular drug is on that plan. Plans typically have either a four- or five-tier formulary.
Tier 1 drugs are “preferred generics,” meaning they are the least expensive.
Tier 2 drugs are “nonpreferred generics” that are still considered generic, but are slightly more expensive.
Tier 3 drugs are called “preferred brand,” which means they are patented as a brand prescription with moderate retail costs.
Tier 4 drugs are referred to as “nonpreferred brand,” meaning that they are more expensive and not as commonly prescribed.
Tier 5 drugs are considered “specialty drugs.” These drugs are often, but not always, self-injectable biologics and are considerably more expensive than Tiers 1 through 4 drugs. Typically plans will charge a higher level of coinsurance for Tier 5 drugs.
Phase Three: Coverage Gap Phase (also known as the “Donut Hole”)
Once the retail costs of a member’s prescriptions exceeds the Initial Coverage Limit ($4,130 for 2021), they’ll pay 25% of the cost of their drugs until their TrOOP (True Out Of Pocket costs) has reached the Catastrophic Coverage Limit ($6,550 for 2021).
While in Phase Three, participants receive a combined 75% Donut Hole discount on the total cost of brand prescriptions. A 70% discount is paid by the brand-name drug manufacturer while a 5% discount is paid by the Medicare Part D plan.
The 70% paid by the drug manufacturer combined with the 25% members pay counts towards the TrOOP and Phase 4 or Catastrophic Coverage threshold. For generic prescriptions, only the 25% the enrollee pays counts towards the TrOOP calculation.
Phase Four: Catastrophic Coverage
Once a participant’s TrOOP exceeds the Catastrophic Coverage level ($6,550 for 2021), their costs will decrease significantly.
When in the Catastrophic Coverage phase, they’ll will pay $3.70 for generics drugs that cost less than $74 or 5% for drugs that have retail prices greater than $74.
For brand drugs, members will pay $9.20 for drugs with a retail cost of less than $184 and 5% for those brand drugs that cost more than $184.
Jim Soucy is a Medicare Supplemental Insurance Advisor who educates clients about the Medicare system and assists them in choosing the supplemental plans that best suit their needs. He is certified by the National Social Security Advisors as well as America’s Health Insurance Plans.