What Is Medicare Part D?

Medicare Part D is the newest addition to the Medicare family. Signed into law by President George W. Bush in 2003, the Medicare Modernization Act (MMA) brought prescription drug coverage to Medicare enrollees in January 2006.

When Medicare Parts A and B were introduced in 1966, qualifying Americans gained access to affordable hospital and medical insurance. That coverage was expanded in 1997 with the addition of optional Medicare Part C (Medicare+Choice) plans, now known as Medicare Advantage plans. Despite these A, B, C’s of Medicare, there were still no options for everyday prescription drug coverage.

Forty years after Medicare was enacted, the government took action to relieve the burden of prescription drug costs for seniors and the disabled. The Part D benefit, however, can be confusing to beneficiaries. Learn how the program works to make sure you get the right medications and the best deal.

Prescription Drug Coverage Before Part D

Before Part D came into play, beneficiaries had limited drug coverage through Medicare. Certain conditions had to be met for coverage to begin.

If you were hospitalized as an inpatient, Part A covered the cost of drugs you received during your stay. It even covered those costs when you were transferred to and stayed in a skilled nursing facility (SNF) after your admission. Part A coverage only lasts for a limited time, up to 90 days in the hospital and up to 100 days in a SNF, and stops as soon as you are discharged.

If you were not admitted to the hospital but were placed “under observation,” you were likely going to pay for your prescriptions out of pocket. This is because Part B, not Part A, covers these outpatient stays. (Yes, you can be an outpatient even if you stay in the hospital overnight.) Unfortunately, Part B drug coverage is even more restrictive than Part A.

Part B medications are limited to specific medical conditions. For example, some chemotherapy drugs and anti-nausea medicines for relieving side effects from chemotherapy are covered. Other medications covered by Part B include:

• Antigens, like allergy shots, to boost the immune system
• Blood clotting factors for people with hemophilia
• Drugs for end-stage renal disease
• Erythropoiesis–stimulating agents for people with severe anemia
• Injectable osteoporosis medications for menopausal women
• Intravenous immune globulin for people with primary immune deficiency disease
• Intravenous nutrition and/or tube feeding for people who are malnourished
• Immunosuppressive medications for people with organ transplants
• Limited vaccines (influenza, pneumococcal, hepatitis B, tetanus in certain cases)
• Medications used in infusion pumps or nebulizer machines

The Government Partners With Private Insurance

The U.S. government has partnered with private insurance companies to offer prescription drug coverage. Though you purchase your plan through an insurance company, the Centers for Medicare and Medicaid (CMS) sets guidelines every year for Part D plans to follow. The rules are many and sometimes complicated but this is what you need to know:

• Access: There must be reasonable access to retail pharmacies.
• Audits: CMS and the Office of the Inspector General conduct periodic audits of insurance companies to assure Part D plans are meeting quality standards.
• Coverage: Every plan must cover enough medications to qualify for creditable coverage.
• Deductibles: The government puts a limit on how much your plan can charge you for a deductible every year.
• Drugs: Both generic and brand name drugs must be offered.
• Out of pocket costs: To limit your out of pocket expenses, you will not pay more than 25 percent of total drug costs or an actuarial equivalent.
• Premiums: Premiums for any given plan, i.e. Plan A vs. Plan B, have to be the same regardless of who signs up. Specifically, you cannot be charged more for the same plan based on the number of medications you take or what medical problems you have.

The government has taken these measures to make sure you are getting fair, comprehensive and cost-effective coverage.

How Part D Works With Other Parts of Medicare

You can be enrolled in Original Medicare (Parts A and/or B) to take advantage of a Part D plan. Another option is to sign up for a Medicare Advantage plan with a Part D component, known as a MA-PD plan. It is possible to purchase a Medicare Advantage plan and a Part D plan separately but this is less common. In most cases, it is not cost effective.

How Part D Works With Medigap

Medicare Part D plans and Medicare Supplemental Insurance, also known as Medigap, are both run by private insurance companies with standards set by the federal government. Do not get them confused. They work quite differently.

Medigap plans cover expenses that Medicare leaves behind. Depending on the Medigap plan you choose, this may include deductibles, coinsurance, home health services, and emergency care expenses you incurred during foreign travel. Generally speaking, these plans do not add extra services to your health coverage.

That was not always the case. Prescription drug coverage was included in Medigap plans but this practice was stopped when Part D came into play in 2006. If you purchased a Medigap plan prior to 2006 and renewed your plan each year since, you may still have those prescription drug benefits. If and when you purchase a Part D plan, your Medigap plan will discontinue your drug coverage and your Medigap premiums will be adjusted accordingly.

In order to purchase a Medigap plan, you must be enrolled in both Parts A and B.

How Part D Works With Other Insurance

Private insurance plans, such as plans offered through your employer, do not have to meet any of the federal guidelines in the prescription plans they offer. This can be both good and bad.

Employer-sponsored plans that offer less coverage than a standard Part D plan are not creditable. This could cost you money if you ever choose to sign up for a Part D plan. If you do not apply when you are first eligible for Part D and do not have creditable coverage, you will be required to pay late penalties when you finally do sign up.

Private plans, however, may be advantageous if they offer medications that Medicare excludes from coverage. Some Part D plans also offer a supplemental component as an added benefit to cover these medications. This will likely increase the cost of monthly premiums but may be worth it for some people.

Some employer-sponsored plans work together with Part D plans and others do not. Some employer-sponsored plans will discontinue prescription drug coverage once you enroll in a Part D plan. This could mean family members covered on your plan would also lose those benefits.

Speak to your employer to find out how your plan works before you make a decision about applying for Part D.

Why Consider It?

Odds are you will need a prescription medication once you are eligible for Medicare.

With drug prices rising every year, it is not surprising that fewer people can afford to pay for their medications out of pocket.

Unless the medications you need are generic (keeping in mind that generic does not necessarily mean inexpensive), having prescription drug coverage through a Part D plan makes sense. For a monthly premium and an annual deductible, it will help to keep your overall costs down.