Medicare Part D: Comprehensive Guide (2021)

Part D provides prescription drug coverage and needs to be separately purchased as Original Medicare does not provide drug coverage. Read this article to understand how Part D works with your Medicare.
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    What is Medicare Part D?

    Medicare Part D is prescription drug coverage.  You can access Part D coverage by purchasing a standalone Prescription Drug Plan (PDP) or as part of a bundled Medicare Advantage (Part C) plan (also known as an ‘MA-PD’ plans).  Both types of plans are provided by private health insurance companies.

    If you purchase a standalone PDP you will be required to pay the monthly premium to the insurance carrier.  90% of Medicare Advantage plans bundle in Part D as part of the plan.  Under both a standalone plan or bundled plan you will have out-of-pocket costs such as deductible, copayments, and coinsurance responsibilities.

    Am I Eligible for Medicare Part D?

    In order to enroll in a standalone Prescription Drug Plan (PDP), you must at least be eligible to enroll in Medicare Part A (but not necessarily enrolled) or currently enrolled in Medicare Part B.  You must also be in the plan’s service area.

    If you are enrolling in an MA-PD plan, you will need to be already enrolled in both Part A and B before you can enroll in an MA-PD plan.  If you choose to enroll in a Medicare Advantage plan, you are not allowed to enroll in a separate standalone PDP.

    If you are eligible to enroll, PDP or MA-PD plan providers must enroll you regardless of your health status.

    What does Medicare Part D cover?

    Each Medicare Part D plan must cover at least a standard level of coverage that is set by the government.  In general, Part D plans cover:

    • Prescription drugs
    • Biologics (drugs made of natural sources that are not chemically synthesized such as allergy shots and gene therapies)
    • Insulin and medical supplies associated with the injection of Insulin (such as syringes, needles, swabs, and gauze)
    • Certain vaccines

    Drug Formularies

    You can find information on what specific drugs a Part D plan (both PDP and MA-PD) covers through a list called a ‘formulary’.

    Formularies are developed by pharmacists, doctors, and other experts and must include at least 2 drugs in the most commonly prescribed drug classes for the Medicare population.  This helps make sure that people with different medical conditions can get the prescription drugs they need.  Formularies may include brand-name drugs and generic drugs.

    Plans are required to cover almost all drugs within these protected classes: antipsychotics, antidepressants, anticonvulsants, immunosuppressants, cancer, and HIV/AIDS.

    If a formulary does not include your specific drug, a similar drug should be available.  If your doctor believes none of the drugs on a plan’s formulary will work for your condition, you are allowed to request an exception for that drug with the plan provider.  You should contact your plan provider to understand the process of requesting an exception.

    Changes to Drug Formularies

    Plan providers can make changes to drug formularies during the year if they following the guidelines of Medicare.  Reasons for change can include a change in therapies, release of new drugs, or because the Food and Drug Administration (FDA) has deemed a drug to be unsafe.

    Plans may also remove brand name drugs and replace them with generic drugs, or change the cost on the brand name drugs when they add generic drugs.  If a plan makes a change to its formulary and that change involves a drug you are taking, the plan must provide you a written notice.  You will be provided notice either 30 days before the change happens or at the time you request a refill.  If you are provided notice at refill then you will be provided at least a month’s supply of the drug under the same plan rules as before the change.

    Pharmacy Networks

    Part D coverage is generally provided through a network of pharmacies that are contracted with the Part D insurance provider.  Network pharmacies generally include retail pharmacies and may include mail-order pharmacies as well.  You will generally be required to fill your prescription at in-network pharmacies.

    Within their networks, Part D plan providers may designate certain pharmacies as ‘preferred’ providers that offer lower cost-sharing (known as ‘preferred cost-sharing’), reducing the cost of drugs to you.

    Under limited conditions, you may be able to fill prescriptions outside of the providers’ network such as if you have an illness or lose your drugs while traveling, or if there is limited availability of the drug at in-network pharmacies.

    What is NOT covered by Medicare Part D?

    By law, Part D plans are not allowed to include the following drugs:

    • Over the counter drugs (some Medicare Advantage plans offer this in their extra benefits outside of Part D coverage)
    • Weight loss or weight gain drugs
    • Vitamins
    • Cosmetic drugs
    • Hair growth drugs
    • Drugs for erectile dysfunction
    • Drugs covered under Part A and B of Medicare

    Do I need to be enrolled in Medicare Part D?

    If you have prescription drugs that you regularly need, it can be an effective way to ensure you are managing your costs as plans can reduce your overall cost for prescription medications.

    Enrolling in Part D is optional, however, if you choose to defer enrollment during the time you are first eligible when turning 65, and do not have ‘creditable coverage’ through your (or your spouse’s) employer, Veterans Affairs (VA), or TRICARE, you will have to pay a Late Enrollment Penalty.

    Creditable coverage’ means coverage that is expected to help pay, on average, as much as Medicare’s standard prescription drug coverage.  If you are on your employer’s health plan, you should receive a notice from your employer informing you if your drug coverage is creditable each year in September.  If you have not received this notice, you should contact your employer’s human resources department, drug plan, or benefits manager to check.

    Part D: Late Enrollment Penalties

    If at any point after you are first eligible for Part D, you have a continuous period of 63 days where you do not have ‘creditable drug coverage’ you will have to pay a Late Enrollment Penalty.  

    The Late Enrollment Penalty for Part D is equal to 1% of the national average beneficiary premium ($33.06 in 2021) for each month you did not have Part D or creditable coverage after you were first eligible for Part D.  In general, this penalty is in effect for as long as you have Part D.

    How do I enroll in Medicare Part D?

    Initial Enrollment Period

    If you are turning 65, your Initial Enrollment Period for Part D coverage coincides with your general Medicare Initial Enrollment Period, which is the 7-month period that starts 3 months before the month you turn 65.

    If you are under 65, you are eligible to enroll in Part D after you have received 24 months of Social Security Disability benefits.

    Special Enrollment Period

    If you are eligible to defer enrollment penalty-free because you have creditable coverage, you must enroll in a Part D plan within 63 days of losing creditable drug coverage to avoid penalties.  This a one-time Special Enrollment Period (SEP) where you can select a new Medicare prescription drug plan (PDP or MA-PD).  If you miss this SEP you must enroll during the Annual Enrollment Period.

    Annual Enrollment Period

    Similar to other parts of Medicare, from October 15 – December 7 of each year, you are allowed to freely switch between or enroll in Part D plans for the next calendar year.  This includes changing standalone PDP plans or switching both your Original Medicare coverage and Part D coverage to an MA-PD plan.

    How much is Medicare Part D?

    Part D: Premiums

    Standalone Part D plans (or ‘PDPs’) generally charge a premium during the year.  Typically, the higher premium you pay, the lower the out-of-pocket costs for the plan.

    The average basic Part D premium will be approximately $30.50 in 2021, an increase from $30.00 in 2020.  You can pay for your premium either through direct withdrawal from your savings account, monthly billing, or as a deduction from your Social Security payments.  You must generally stay with your payment selection for the entirety of the year.

    If you receive coverage for prescription drugs through a Medicare Advantage plan, this is often bundled into your coverage and you do not pay a separate premium in order to receive Part D coverage.

    Premium Adjustment

    If you are a high-income earner, you might have to pay more for your Medicare drug coverage.  This called the Part D Income Related Monthly Adjustment Amount (sometimes known as Part D-IRMAA).   Social Security will contact you if you have to pay the Part D IRMAA.  The extra amount you have to pay is paid directly to Social Security and not your plan provider.

    Your adjustment is based on your ‘modified adjusted gross income’ reported on your IRS tax return from 2 years ago as this is the most recent tax return information provided to Social Security by the IRS.  For example, Social Security would use tax returns from 2019 to determine your IRMAA in 2021.

    The amount you pay can change each year. If you have to pay for the IRMAA.  The extra amount is typically taken from your Social Security check.  If the amount isn’t taken from your Social Security check, you will receive a bill from Medicare.

    In 2021, the IRMAA adjustments are as follows:2021 Part D Income Related Monthly Adjustment Amount (IRMAA)Appealing Your Premium Adjustment

    A lot of things can happen in 2 years and the income reported to the IRS from 2 years ago may no longer reflect your current situation. If you have experienced a ‘life-changing event’ that caused an income decrease, or if you think the income information Social Security used to determine your IRMAA was incorrect or outdated, you can request that Social Security revisit its decision.

    To request a review of your premium, you will need to fill out a Medicare IRMAA Life-Changing Event (Form SSA-44) and provide evidence of your life-changing event as well as the most recent tax return verifying your reduced income. Please note this will also impact any IRMAA that you have on your Part B premium.

    Out-of-Pocket Costs (Deductibles, Copays and Coinsurance)

    In addition to any monthly premiums, you will have out of pocket costs in the form of deductibles, copays, and coinsurance.

    Deductibles

    Deductibles can vary across Part D plans, however, the government sets the maximum deductible chargeable.  In 2021, the maximum deductible allowable is $445.

    You must pay for 100% of costs until you reach your deductible before your Part D insurance kicks in.

    Copays and Coinsurance

    For Part D, your copay and coinsurance obligations may change depending on the four different ‘phases’ of coverage.  These phases are:

    Initial Coverage:

    After you reached your deductible you enter the ‘Initial Coverage’ phase and will be responsible for 25% of the costs of prescription drugs until your total out of pocket has reached $4,130 (for 2021).

    During this period, you will be responsible for copayment/coinsurance costs as determined by your Part D plan provider.  Plans will categorize their formularies into cost-sharing ‘tiers’ which will typically determine the copayment/coinsurance you will make for the drug you are filling.  Many will have 3 to 4 tiers, with lower tiers costing less than higher tiers.  For example:

      • Tier 1: Generic Drugs
      • Tier 2: Preferred Brand Name Drugs
      • Tier 3: Non-preferred Brand Name Drugs
      • Tier 4: High-cost of ‘specialty’ drugs
    Coverage “Gap” (previously known as the ‘Donut Hole’):

    Once you reach $4,130 of total out of pocket spend during the Initial Coverage phase you enter what is traditionally known as the ‘Coverage Gap’ phase.  This phase was previously also more commonly called the ‘Donut Hole’ as your copayment/coinsurance obligation during this phase was greater than 25% (which is what you pay during the Initial Coverage phase).

    However, regulation over time has benefited consumers and the effective coinsurance during this period remains at 25%, in line with what you are paying during the Initial Coverage phase.  This is because drug manufacturers are now responsible for 70% of the drug cost (known as the ‘manufacturer discount’) during this phase.  This effectively means there is no longer a ‘gap’ from the perspective of you as the beneficiary.

    While your out-of-pocket costs are now broadly the same during this phase, the Coverage Gap remains relevant as you are required to reach an additional $6,550 out-of-pocket costs (for 2021) before you reach what is known as ‘Catastrophic Coverage’.

    Importantly, the 70% manufacturer discount mentioned above counts towards the $6,550 out of pocket costs even though you don’t pay this (meaning you effectively get credit for paying 95% (25% + 70%) of the cost for the drug during the ‘Coverage Gap’ phase). 

    Catastrophic Coverage:

    Once you have reached $6,550 in out-of-pocket costs during the Coverage Gap phase, you will enter ‘Catastrophic Coverage’.  When you have reached Catastrophic Coverage, you will pay much lower copays and coinsurances.  For 2021, once you reach Catastrophic Coverage you will pay the greater of 5% coinsurance or $9.20 for branded drugs and $3.70 for generic drugs.

    Part D for Low-Income Individuals (‘Extra Help’)

    Extra Help is a program that is can help people with low income (defined as <150% of the Federal Poverty Line) pay for Medicare prescription drug plan costs.  Extra Help can pay for costs like premiums and out-of-pocket costs.  To find out if you qualify you will need to fill out an Application for Extra Help with Medicare Prescription Drug Plan Costs (form SSA-1020) online.  If you apply to the State Medicaid office, the state Medicaid office will also check if you are eligible for other low-income assistance.

    If you already have full Medicaid, receive Supplement Security Income benefits, or get help from your state for Medicaid with Part B premiums, you will automatically qualify for Extra Help.  In addition, if you receive Extra Help you will not be subject to any Late Enrollment Penalties.

    Final Words

    Medicare Part D helps to cover prescription drug costs.  Part D providers are required to have 2 drugs for each of the key most commonly prescribed drug classes for the Medicare population.  However, drug lists (or ‘formularies’) can be different across different providers so it is always worthwhile checking your drug plan every year to make sure you are paying the least.  If you receive Medicare through Original Medicare you need to enroll in a standalone Prescription Drug Plan (PDP), however, if you are enrolled in a Medicare Advantage plan, the plan will typically bundle in prescription drugs.