Paying for Drugs When You Have a Medigap Plan

by David Bynon, last updated

For some people, the switch to Medicare is welcome. However, even with Medicare being universally available, Medicare coverage varies widely among individuals. If you look at Medicare Advantage plans, you already understand how many options exist.

Most of these plans include prescription coverage. However, this is not true regarding Medicare Supplements (Medigap). In this article, we’ll explain how to get coverage and avoid trouble if you have a Medigap policy with prescription drug coverage.

Key Takeaways

  • Prescription drug coverage is not a standard Medicare benefit.
  • Medicare only covers medications administered as an inpatient or in your doctor’s office.
  • Medicare beneficiaries can add prescription drug coverage by joining a Medicare Part D plan.
  • In most areas, Part D plans start at less than $20 per month.
  • Prior to 2006, Medicare Supplement plans (Medigap) were allowed to include prescription drug benefits. The federal Medicare program no longer allows Medigap plans with drug benefits.
  • Medicare Part D plans are fully compatible with all 10 standardized Medigap plans.

Does Medigap Cover Drugs?

No. Not anymore. Prior to the passage of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), you could get coverage from a Medigap insurance company with prescription drug benefits. Most of these Medigap policies had limited prescription coverage benefits, but some had creditable drug coverage. MMA is the federal law that brought us the Medicare Advantage and Medicare Part D private health insurance options. The Centers for Medicare & Medicaid Services didn’t want Medigap plans to compete, so they stopped allowing the sale of any Medicare plan that included prescription benefits. It didn’t matter if it was creditable coverage or not. Medicare put the kibosh on Medigap policies offering prescription drugs.

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You Can’t Join a Medicare Part D Plan If You Have a Medigap Policy with Drug Coverage

Although MMA prevented insurance companies from selling new policies with drug coverage, it did not require them to cancel these plans. If you have one, you can keep it. This includes Plan H, Plan I, and Plan J. However, according to, you can’t join a Medicare prescription drug plan and have a Medicare Supplement plan with drug coverage. If your Medicare Supplement plan covers prescriptions, you’ll need to tell your insurance company if you join a Medicare Part D plan. Your carrier will remove the coverage from your policy and adjust your premium. Be aware that your insurance company must send you a letter every year to let you know if the drug coverage in your Medigap policy is creditable. If it isn’t, you could be subject to a Medicare Part D penalty for not having creditable prescription drug coverage.

Getting Medicare Prescription Drug Coverage

Medicare Part D is now the official Medicare program for getting prescription coverage with Medicare. It works with both Original Medicare (Parts A and B) and with Medicare Advantage plans. Although Medicare Part D coverage is optional, Medicare has a penalty system to incentivize beneficiaries to get it. Simply put, if you do not join a Part D plan or have creditable prescription drug coverage as soon as you are eligible, Medicare will penalize you when you do buy a plan.

Part D Deductible Phase

Fortunately, basic Medicare prescription drug coverage starts at less than $20 per month in most areas. Part D prescription coverage has four coverage phases, starting with the deductible phase. In the deductible phase, you pay all costs at the pharmacy until the deductible is met. Then the plan kicks in to begin paying its share.

Part D Initial Coverage Limit Phase

The second phase is your initial coverage. During this phase, you and your plan share your prescription costs until total retail spending on your medications reaches the annual Initial Coverage Limit (ICL). This year ICL is $5,030. If you reach the ICL, your next phase is the coverage gap, also known as the Part D donut hole. In this phase you pay all costs, however, you get your drugs at a discount.

Part D Coverage Gap Phase

In the coverage gap, you pay no more than 25% of the price for your brand-name medications. But, 95% of the full retail price goes toward getting you out of the donut hole. For your generic medications, Medicare pays 75% and you pay the remaining 25%. There is also a dispensing fee. Your plan pays 75% of the fee and you pay the other 25%. The donut hole phase ends once your True Out-of-Pocket (TrOOP) spending reaches $8,000. That puts you into the final phase, catastrophic coverage.

Part D Catastrophic Coverage Phase

In the catastrophic coverage phase, you pay no more than $0.00 for generics and $0.00 for brand name medications.

Costs That Count Towards Getting You Out of the Donut Hole

The following costs count towards getting you out of the donut hole:

  1. Annual deductible, coinsurance, and copayments
  2. Your discount on brand-name drugs drug in the coverage gap
  3. What you pay while you’re in the coverage gap

Costs That Don’t Get You Out of the Donut Hole

The following items do not count:

  1. Your monthly drug plan premium
  2. Pharmacy dispensing fees
  3. The amount you pay for medications that are not covered

What Are My Options If I Don’t Have Prescription Coverage?

If you are new to Medicare, and you are still within your Initial Enrollment Period (IEP), you have three options:

  1. Once you have enrolled in both Medicare Part A and Part B, and you have received your Medicare card, you can join a standalone Medicare prescription drug plan.
  2. If you want to get all of your coverage from a single plan, you can join a Medicare Advantage plan that includes Medicare prescription drug coverage.
  3. If you can’t find a Medicare Advantage plan with the level of prescription drug coverage you need, you can get a plan without Part D and add a stand-alone Part D plan.

If you have Medicare Part A, Part B, and a Medigap plan you have two options:

  1. Keep your Medicare Supplement insurance and purchase the Medicare Part D plan of your choice. Be certain that the PDP you want covers your prescribed medications at a favorable rate; or
  2. Cancel your Medigap plan and get your coverage through a Medicare Advantage plan that includes Part D (an MA-PD plan). When you enroll in a Medicare Advantage plan you will be automatically disenrolled from Medicare Part A and Part B.

Timing is critical. Unlike your Medigap policy, you can only enroll in Medicare Part D and Medicare Advantage plans during the fall Open Enrollment Period (OEP). OEP begins on October 15 and ends on December 7. Even though you join during OEP, your coverage does not begin until January 1. The only exception to this rule is when you turn age 65. When you turn age 65 you have an Individual Enrollment Period (IEP). Your IEP is a 7-month period that begins 3 calendar months before your birth month. It ends 3 calendar months after your birth month.


The Medicare Prescription Drug, Improvement, and Modernization Act standardized prescription drug plans for Medicare beneficiaries. Part D plans work with every type of Medicare plan, including Original Medicare, Medicare Advantage plans, and Medigap policies.

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