2021 Guide to Medicare Part D Plans
If you’re new to Medicare or simply want to learn more about 2020 Medicare prescription drug plans, you’re in the right place. This page covers a broad range of topics that will help you learn everything you need to know about Medicare’s private prescription drug plan option, Medicare Part D.
Let's start at the beginning.
What are Medicare Part D Plans?
Original Medicare - that's your Part A hospital insurance and Part B medical insurance - does not cover prescription medications. In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act added Part C and Part D, allowing private insurers to offer health plans (Part C) and prescription drug plans (Part D) to seniors and other Medicare beneficiaries.
Medicare prescription drug plans (PDPs) are allowed to have different costs and different drug coverage. They are not all the same, so it's critical that you make sure your prescriptions are covered at a favorable price.
You can get your Part D coverage in two different ways. The first way is to enroll in the PDP of your choice. The monthly cost on most PDPs is modest, and they work with your Original Medicare to give you more coverage.
You can also get Part D as part of a Medicare Advantage Plan (Part C). These are private health plans that let you get all of your health care coverage from the same insurance company. Medicare Advantage plans that have Part D drug coverage are sometimes referred to as MAPDs.
Who Qualifies For Medicare Part D?
If you are eligible for Medicare now, then you can enroll in one of the Medicare Part D plans available in your state. This includes people ages 65 and older who are U.S. citizens or permanent residents. People qualifying for Medicare due to a disability, End-Stage Renal Disease (ESRD), or amyotrophic lateral sclerosis (Lou Gehrig's Disease), also qualify.
Part D plan enrollment is 100% voluntary. In most cases, you will pay an additional monthly premium for prescription coverage. If you already have coverage, you can wait to join a PDP, but do your homework. If the prescription drug coverage you have now is not as good as Medicare Plan D coverage (creditable coverage) you may have to pay Medicare's penalty for joining late.
Before you can enroll in a Medicare Prescription Drug Plan or a Medicare Advantage Plan, you will need to have both Medicare Part A and Part B. Plus, you must reside in the service area of the plan you want to join. Plans are regional, not nation-wide.
When Can I Enroll In a 2020 Medicare Part D Plan?
You can enroll in a Medicare Part D Plan as soon as you are first eligible. You have a period of 7 months called your Initial Enrollment Period (IEP). Your IEP starts three months before the month you turn 65 to three months after your birth month. So, if you turn 65 in November, your IEP starts in August and ends in February.
If you have Medicare due to a disability the timing is a little different. In this case, you can enroll in a PDP three months before and three months after your 25th month of disability payments from Social Security.
There is also an Annual Enrollment Period (AEP) for Medicare Advantage and Medicare Part D. Open enrollment for Medicare starts on 15 October and runs through 7 December. These dates are not affected by Obamacare. When you join or switch plans during AEP, your coverage begins on 1 January the following year.
Please note that if you qualify for the SSI Extra Help program you can enroll in a Part D Plan anytime. You don't have to wait until open enrollment.
How Much Does Medicare Part D Cost?
Every Medicare Part D Plan (PDP) is different. Provided by independent insurance carriers, PDPs have different drug formularies, premiums, deductibles, co-payments, and coinsurance. Let's start with the formulary.
Most people are surprised to learn that Medicare drug plans are not required to cover all Medicare approved medications. This is one of the reasons that shopping for a plan can be challenging.
Drug Plan Formularies
Every drug plan has a unique list of medications called a formulary. The formulary is simply a list of covered medications and pricing tiers. Plans create their formulary using the guidelines set by the United States Pharmacopoeia.
The formulary system makes choosing a plan challenging because it forces you to compare the medications you use across all plan formularies. If your medication is covered by a plan, it may be in a different tier than other plans and have a different copayment or coinsurance amounts. This is why checking the exact costs on all of your medications is critical.
As if the drug formulary and tier system aren't complicated enough, it's nowhere near as confusing as Medicare Part D's cost structure. Unlike other forms of health insurance, Medicare Part D has multiple phases. So, to understand what you'll pay for your medications, you need to understand more about the Medicare Part D cost periods.
All Medicare Part D plans have a monthly premium. The average nationwide monthly premium for 2020 is around $32.50. However, in most states plans start around $20. So, if you don't have regular prescriptions or your prescriptions are few and common, your cost will be minimal.
Your monthly premium is not a cost phase. You'll make this payment every month, regardless of the cost phase you're in.
Your deductible is the first cost phase. This is the amount you'll pay at the pharmacy before cost-sharing begins. Some plans have a $0 deductible, but most have a deductible, up to the 2020 limit of $435.
If you have minimal or no regular prescriptions, it's conceivable that you will never take advantage of your plan's cost-sharing benefit. That's simply the nature of insurance. When you need it most, you'll be happy to have it.
Initial Coverage Period
After you've met your plan's deductible, you'll start your initial coverage period. This is where you make a co-payment or coinsurance payment for your prescriptions at the pharmacy. How long you're in the initial coverage period depends on the retail price of your medications and your plan’s benefits structure. With most 2020 plans, your initial coverage period ends when your drug costs reach $4,020. This is the initial coverage limit (ICL).
Coverage Gap Phase
If you reach the annual initial coverage limit, you enter the coverage gap phase, also known as the doughnut hole. While you're in the coverage gap there is no cost-sharing. You pay all costs for your prescriptions. However, you do get discounts that help lower the cost of your medications.
In 2020, you get a 75 percent discount on most brand-name drugs, paid for by the manufacturer and the federal government. The remaining 25 percent is what you pay. You also get a 25% discount on all generic drugs.
Catastrophic Coverage Phase
In 2019, catastrophic coverage begins after you have paid $5,100 in out-of-pocket costs. This is the amount you have paid, not the total drug costs.
In this phase, you pay significantly less for your covered medications for the remainder of the year. The costs that help you reach the catastrophic coverage phase include:
- Your deductible;
- What you paid during the initial coverage period;
- Almost the full cost of brand-name drugs (including the manufacturer’s discount) purchased during the coverage gap;
- Amounts paid by others, including family members, most charities, and other persons on your behalf; and
- Amounts paid by State Pharmaceutical Assistance Programs (SPAPs), AIDS Drug Assistance Programs, and the Indian Health Service.
Costs that do not help you reach catastrophic coverage include monthly premiums, the cost of non-covered drugs, the cost of covered drugs from pharmacies outside your plan’s network, and the 75% generic discount. During catastrophic coverage, you will pay 5% of the cost for each of your drugs, or $3.60 for generics and $8.95 for brand-name drugs (whichever is greater).
Note: If you get Extra Help from Social Security, the coverage gap phase will not apply to you. Instead, you'll pay different costs during the year.
Are Prescription Drug Discounts Available?
A Part D Plan does not cover everything, and it's only good for up to $3,820 of initial benefits (2019 initial coverage limit). After that, you pay out of pocket until you become eligible for catastrophic coverage. This is why we highly recommend GoodRx for People on Medicare. They have the most innovative prescription discount program we've seen for people with Medicare benefits.
When Should I Get Medicare Part D?
Most people join a Medicare Part D Plan during their Initial Enrollment Period (IEP). IEP is a 7-month period that occurs when you first become eligible for Medicare. It starts three months before the month of your 65th birthday an ends three months after the month of your 65th birthday.
If you have Medicare due to a disability, your IEP for Medicare Part D starts 3 months before the 25th month of your disability and ends 3 months after your 25th month of disability.
For most people, their IEP is the best time to get Part D coverage. The one exception is if you have "creditable coverage" through an employer's health plan or retirement benefit. It's best to call Medicare to make sure the coverage you have is credible.
If you don't enroll in Part D when you are first eligible, and you don't have credible coverage, Medicare will assess a late penalty on top of your Part D premium. It's not a one-time penalty, either. You pay it for as long as you have coverage.
Is Medicare Part D Mandatory?
Medicare Part D is not mandatory. However, unless you have other creditable coverage, it is critical that you enroll as soon as you are first eligible. If you don't, you may have to pay a late enrollment penalty in addition to your monthly Part D premium if you decide to enroll later. The late enrollment penalty also applies if you go without Medicare prescription drug coverage (or creditable coverage) for 63 or more days. The penalty adds 1 percent to your premium for every month that you didn't have creditable coverage.
What is The Late Enrollment Penalty (LEP)?
Unless you are exempt, Medicare will impose a penalty if you do not join a Part D plan when first eligible to do so. Those exempt from the penalty include people who:
- Had creditable coverage, or
- Qualify for the Low-Income Subsidy (LIS), or
- Were eligible for a Special Enrollment Period because they were impacted by Hurricanes Katrina, Wilma or Rita
The penalty is 1% of the national base monthly premium ($34.10 in 2016) for every full month the individual could have been but was not enrolled. The base calculation changes annually and is based on the average national base premium.
The lifetime penalty is added to the person’s monthly premium is collected by the Part D plan, not directly by CMS. If a penalty is imposed before the beneficiary is 65, it is removed when he or she turns 65.
If the late enrollment penalty was imposed in error, there is a process to request reconsideration. Medicare uses Maximus, an independent review organization, to process reconsiderations. The process can take months, and the decision is final.
Note: The late enrollment penalty must be paid during the time the penalty is being reconsidered. On approval, the beneficiary will be reimbursed for all erroneous penalty charges.
What If I Don't Take Prescription Medications?
Prescription drug coverage is a smart choice for all seniors. Even though you may not take medications now, you never know when you will need them. If you don't currently have prescriptions, choose one of the low-cost basic plans. You can always upgrade next year if your medical needs change. Also, don't forget that enrolling in a Part D plan when you are first eligible will save you a lot of money down the road.
What If I Already Have A Creditable Prescription Drug Plan?
If you currently have prescription drug coverage from an employer or union, call your employer or union’s benefits administrator prior to making changes to your plan. Your employer or union plan will tell you each year if your prescription drug coverage is creditable prescription drug coverage.
In most cases, when you drop your employer or union coverage, you will not have an option to get it back. Plus, most employer or union drug coverage plans cannot be dropped if you have other health care coverage (e.g., doctor and hospital) through their group plan. Be aware that if you drop coverage for yourself, you will not be able to keep coverage for your spouse and dependents.
When Does Part D Coverage Begin?
If you join a plan during your IEP prior to the month of your 65th birthday, your prescription coverage starts on the first day of your birthday month. If you join during or after your birth month, your coverage starts on the first day of the next month. It works the same way if you have Medicare for a disability. The key month is the month you receive your 25 SSI payment.
When Is The Medicare Part D Plan Annual Election Period?
If you missed your IEP, or if you have a Part D Plan and want to change it, mark the Annual Election Period (AEP) on your calendar. Commonly called the Medicare Open Enrollment, AEP is the time of year when all Medicare beneficiaries can join, drop, or switch plans.
AEP is the same time each year. It starts on 15 October and ends promptly on 7 December. Be aware that coverage does not start immediately. Regardless of the day you join, your coverage begins on 1 January and continues for the entire year.
There are some rare cases where you may be eligible to enroll during a Special Enrollment Period (SEP). If you are eligible for a SEP, Medicare will send information to you in the mail with details and instructions.
There is one additional enrollment period that may apply to you. Each year from 1 January through 14 February 14, anyone enrolled in Medicare Advantage Plans with prescription drug coverage (an MA-PD plan) can join a Part D plan if they first cancel their MA-PD and return to Original Medicare. This is the Medicare Advantage Disenrollment Period.
How Do I Get Enrolled?
You must affirmatively enroll in a Part D plan to participate; It’s not automatic. If you are eligible and don't enroll during the open enrollment period (or your individual enrollment period if you are just turning 65) you will have to pay a late-enrollment penalty (LEP) to use the benefit. The penalty is about 1% the average premium times the number of months that you were eligible but not enrolled.
Where Do I Enroll?
You enroll in Part D plan through an authorized health insurance agent, through the plan itself, or through the Medicare.gov website.
The first step is to compare plans. Click here to visit your state's Part D plan page.
Can I switch my Medicare Part D Plan?
If your Medicare Part D Plan does not meet needs, you can and should switch plans. The most common reason people switch from one plan to another is that their medications change. However, you might also discover that a plan that was a great deal last year is not such a good deal this year.
Before you do anything, you need to know your options. In most cases, you can't simply switch from one plan to another, except during the Medicare Annual Election Period (AEP). If your plan does not meet your needs, you need to take the time to educate yourself about your current plan and other plans so you can make an informed decision. That way, when AEP comes around, you can review the new plans, and changes to your preferred plans, before making a final decision. It all comes down to the numbers.
Is there a penalty for switching Part D Plans?
You cannot be penalized for switching plans. However, you can be penalized if you do not enroll in a Part D plan when first eligible. That said, you can only switch plans once a year, during the Annual Election Period. If you don't switch during the AEP, you'll have to wait for another full year.
When can I switch Part D Plans?
The Annual Election Period sometimes called "Open Enrollment", starts on 15 October and ends on 7 December. In rare cases, you may qualify for a Special Enrollment Period. Also, if you enroll in a Medicare Advantage plan, and then later change your mind, you can go back to Original Medicare and join a Part D plan from 1 January to 14 February.
Can Changing My Medicare Part D Plan Lower My Drug Costs?
Medicare.gov suggests six ways to reduce the cost of your prescription drugs. They include:
- Switching to generics or other lower-cost drugs;
- Choosing a plan (Part D) that offers additional coverage in the gap (donut hole);
- Pharmaceutical Assistance Programs;
- State Pharmaceutical Assistance Programs;
- Applying for Extra Help; and
- Exploring national and community-based charitable programs.
We suggest a 7th method: compare plans annually and switch into the best plan for your health and financial needs. It's not just about gap coverage, because most seniors never reach the coverage gap. What you need is the best overall plan for you, and it may change every year.
Medicare Part D Plans (PDPs) help you pay for your prescription drugs. All PDPs are different, and the costs can vary significantly. It's not uncommon for a prescription under one plan to cost you $5 at the pharmacy, while the very same prescription through another plan costs $25. This is why carefully comparing and choosing your Part D Plan annually is so crucial. You need to choose the best plan for you, which includes covered medications, the monthly premium, and the costs for your prescriptions (copay).
Can I Get Extra Help Paying For Prescription Drug Coverage?
People with limited income and resources may qualify for Extra Help paying their Medicare prescription drug coverage costs. Extra Help is a Medicare program to help people with limited income and resources pay Medicare prescription drug costs. You may qualify for Extra Help, also called the low-income subsidy, if your yearly income and resources are below the established limits. Call 1-800-MEDICARE.