Medicare Part D, also known as prescription drug coverage, is the part of Medicare that helps you pay for prescription drugs. When you enroll in a Part D plan, you are responsible for paying your deductible, premium, copayment, and coinsurance amounts. The maximum Medicare Part D deductible for 2020 is $435.
Let’s take a closer look at what Medicare Part D is all about and what enrolling in a Medicare Part D plan might cost you in 2020.
Once you are enrolled in Medicare Part A and Part B, original Medicare, you can enroll in Medicare Part D. Medicare prescription drug plans help cover any prescription drugs that are not covered under your original Medicare plan.
You are eligible to enroll in a Medicare Part D plan during your initial Medicare enrollment period. This period runs 3 months before, the month of, and 3 months after your 65th birthday. There are also additional Medicare Part D enrollment periods, such as:
- April 1 to June 30: You can sign up if you enrolled in Medicare Part B during the general Part B enrollment period (January 1 to March 31).
- October 15 to December 7: You can sign up if you are already enrolled in parts A and B but have not yet enrolled in Part D, or if you want to switch to another Part D plan.
Each Medicare Part D plan has a list of prescription drugs that it covers, called a formulary. Prescription drug plan formularies cover both brand-name and generic drugs from the commonly prescribed drug categories. Before you enroll in a Part D plan, check that your medications are covered under the plan’s formulary.
When you enroll in Part D, there are plan fees in addition to your original Medicare costs. These fees include a yearly drug deductible, monthly drug plan premium, and drug copayments and coinsurance.
The Medicare Part D deductible is the amount that you will pay each year before your Medicare plan pays its portion. Some drug plans charge a $0 yearly deductible, but this amount can vary depending on the provider, your location, and more. The highest deductible amount that any Part D plan can charge in 2020 is $435.
The Medicare Part D premium is the amount you will pay monthly to be enrolled in your prescription drug plan. Like $0 deductibles, some drug plans charge a $0 monthly premium.
The monthly premium for any plan can vary depending on a variety of factors, including your income. If your income is above a certain threshold, you may have to pay an income-related monthly adjustment amount (IRMAA). This adjusted amount for 2020 is based on your 2018 tax return.
These are the Part D IRMAAs based on income level as an individual filing on your tax return:
- $87,000 or less: no additional premium
- $87,000 to $109,000: +$12.20/month
- $109,000 to $136,000: +$31.50/month
- $136,000 to $163,000: +$50.70/month
- $163,000 to $499,999: +$70.00/month
- $500,000 and above: +$76.40/month
The thresholds are different for people filing jointly and those who are married and file separately. However, the monthly increase will only ever range from $12.20 to $76.40 extra per month, depending on your income and filing status.
Copays and coinsurance
The Medicare Part D copayment and coinsurance amounts are the costs you pay after your Part D deductible has been met. Depending on the plan you choose, you will either owe copayments or coinsurance fees. A copayment is a set amount that you pay for each drug, while coinsurance is the percentage of the drug cost that you are responsible for paying.
The Part D copayment and coinsurance amounts can vary depending on the “tier” that each drug is in. The price of each drug within the drug plan’s formulary goes up as the tiers increase. For example, your prescription drug plan may have the following tier system:
|Tier||Copayment/coinsurance cost||Types of drugs|
|tier 1||low||mostly generic|
|tier 2||medium||preferred brand-name|
|tier 3||high||nonpreferred brand-name|
|specialty tier||highest||high-cost brand-name|
When you enroll in Medicare, you have the option of choosing a Medicare Part D or a Medicare Advantage plan (Part C) to meet your prescription drug coverage needs.
Medicare Advantage pros and cons
Most Medicare Advantage plans include prescription drug coverage in addition to other coverage options such as dental, vision, hearing, and more. This additional coverage can lead to an increase in overall costs, and you may end up paying more for a Medicare Advantage plan than just adding Part D to your original plan.
In addition, some Medicare Advantage HMO plans may limit your coverage to in-network doctors and pharmacies. This means that your current doctor or pharmacy may not be covered by the Medicare Advantage plan in which you want to enroll.
Late enrollment penalty
No matter whether you choose Medicare Part D or a Medicare Advantage plan, Medicare requires that you have some form of prescription drug coverage. If you go without prescription drug coverage for a period of 63 consecutive days or more after you initially enroll in Medicare, you will be charged a permanent Medicare Part D penalty. This penalty fee is added onto your prescription drug plan premium each month you are not enrolled.
The Medicare Part D late enrollment penalty is calculated by multiplying the “national base beneficiary premium” by 1 percent and then multiplying that amount by the number of full months you went without coverage. The national base beneficiary premium is $32.74 in 2020, so let’s a look at what this penalty might look like for someone who enrolls late in 2020:
- Mr. Doe’s initial enrollment period ends on January 31, 2020.
- Mr. Doe does not enroll in creditable prescription drug coverage until May 1, 2020 (90 days later).
- Mr. Doe will owe a penalty of $0.33 ($32.74 x 1%) per month that he went without coverage (3 months).
- Mr. Doe will pay a $1.00 monthly premium penalty ($.33 x 3 = $.99, rounded to the nearest $0.10) going forward.
The late enrollment penalty is subject to change as the national base beneficiary premium changes each year.
Most Medicare Part D plans have a coverage gap, also called a “donut hole.” This coverage gap happens when you’ve reached the limit of what your Part D plan will pay for your prescription drugs. This limit is lower than your catastrophic coverage amount, however, which means that you will have a gap in your coverage.
Here’s how the coverage gap for Medicare Part D works in 2020:
- Yearly deductible. $435 is the maximum deductible that Medicare Part D plans can charge in 2020.
- Initial coverage. The initial coverage limit for Medicare Part D plans in 2020 is $4,020.
- Catastrophic coverage. The catastrophic coverage amount kicks in once you have spent $6,350 out of pocket in 2020.
So, what happens when you’re in the coverage gap of your Part D plan? That depends on the following:
Once you hit the coverage gap, you will owe no more than 25 percent of the cost of the brand-name prescription drugs covered by your plan. You pay 25 percent, the manufacturer pays 70 percent, and your plan pays the remaining 5 percent.
Example: If your prescription brand-name drug costs $500, you will pay $125 (plus a dispensing fee). The drug manufacturer and your Part D plan will pay the remaining $375.
Once you hit the coverage gap, you will owe 25 percent of the cost of the generic drugs covered by your plan. You pay 25 percent and your plan pays the remaining 75 percent.
Example: If your prescription generic drug costs $100, you will pay $25 (plus the dispensing fee). Your Part D plan will pay the remaining $75.
To make it out of the coverage gap, you must pay a total of $6,350 in out-of-pocket costs. These costs can include:
- your drug deductible
- your drug copayments/coinsurance
- your drug costs in the gap
- the amount the drug manufacturer pays during the donut hole period
Once you’ve paid this out-of-pocket amount, your catastrophic coverage kicks in. After that, you’ll only be responsible for a minimal copayment or coinsurance. In 2020, the coinsurance amount is 5 percent and the copayment amount is $3.60 for generic drugs and $8.95 for brand-name drugs.
Medicare beneficiaries who have trouble meeting prescription drug costs may benefit from the Extra Help program. Extra Help is a Medicare Part D program that assists in paying premiums, deductibles, and coinsurance costs associated with your prescription drug plan.
To qualify for Medicare Extra Help, your resources must not exceed a total of $14,610 as an individual or $29,160 as a married couple that lives together. Your resources include cash on hand or in the bank, savings, and investments. If you qualify for Extra Help, you can apply through your prescription drug plan with supporting documents, such as an official Medicare notice.
Even if you don’t qualify for Extra Help, you may still qualify for Medicaid. Medicaid provides healthcare coverage for people with low income who are under 65. However, some Medicare beneficiaries are also eligible for Medicaid coverage, depending on income level. To see if you qualify for Medicaid, visit your local social services office.
Other cost-savingS tips
Aside from receiving financial assistance, there are some other things you can do to help lower your prescription drug costs:
- Shop different pharmacies. Pharmacies may sell drugs for different amounts, so you can call around to ask how much a specific drug might cost you.
- Use manufacturer coupons. Manufacturer websites, drug savings websites, and pharmacies may offer coupons to help lower your out-of-pocket drug cost.
- Ask your doctor about generic versions. Generic medications often cost less than the name-brand versions, even if the formula is almost entirely the same.
Medicare Part D coverage is mandatory as a Medicare beneficiary, so it is important to choose a plan that works for you. When shopping around for prescription drug coverage, consider which of your medications are covered and how much they will cost.
Over time, prescription drug plan costs can add up, so if you are having trouble paying your costs, there are programs that can help.
To compare Medicare Part D or Medicare Advantage (Part C) prescription drug plans near you, visit Medicare.gov’s Find a Medicare plan tool to learn more.