How the Medicare Extra Help Program Works

Medicare Part D did not exist until 2006. Before that, people enrolled in Medicare paid for their medications out of pocket. While Part D significantly decreased those costs, there are still monthly premiums, annual deductibles, copayments, and coinsurance to consider, not to mention the Part D coverage gap known as the donut hole.

With 89% of people 65 years and older taking at least one prescription drug and 54% taking four or more, how can Medicare beneficiaries afford it?

What Is Medicare Extra Help?

The Part D Low-Income Subsidy (LIS), also known as Medicare Extra Help, is a federal assistance program for people on Medicare Part D. The goal of the program is to decrease Part D costs for people who have low incomes or limited resources.

The program is run together by the Centers for Medicare & Medicaid Services (CMS) and the Social Security Administration (SSA). Depending on how you qualify for Medicare Extra Help, you will hear from one or the other federal organization.

Qualifying for Medicare Extra Help

You are “deemed” qualified for Extra Help if:

• You are dual eligible for Medicare and Medicaid.
• You are enrolled in a Medicare Savings Program.
• You receive Social Security Income (SSI) benefits.

You will receive a letter from Medicare that confirms your eligibility for Extra Help. When you are deemed eligible for Medicare Extra Help, you are automatically enrolled in the program and do not need to take steps to apply for the program yourself.

CMS will “re-deem” your eligibility status once per year. This means that CMS will assure that you still meet one of the three conditions for automatic enrollment. If you no longer meet one of these qualifying conditions, you are “un-deemed” and will have to apply for Medicare Extra Help directly based on state-based criteria.

Applying for Medicare Extra Help

If you are not deemed qualified for Medicare Extra Help, you must directly apply for the program through the Social Security Administration, not through Medicare. This can be done online or in person at your local SSA office.

Eligibility for Medicare Extra Help is based on financial criteria—income and assets. Not all income will be considered on your application. While payroll, annuities, pensions, and rental income are counted, income from foster care, medical reimbursements, and public assistance programs are not.

For example, housing assistance, home energy assistance, and Supplemental Nutrition Assistance Program (food stamps) would not be considered. Keep in mind this list is not all-inclusive.

In terms of assets, Social Security will ask you to report bank accounts (checking or savings), cash, certificates of deposit (CDs), individual retirement accounts (IRAs), mutual funds, real estate (other than your primary residence, land used to grow produce for home consumption, or rental properties), savings bond, and stocks.

SSA will reach out to you for a redetermination (a renewal) once a year. You have 30 days to reply or you could lose your access to your Medicare Extra Help benefits.

Full Benefits for Medicare Extra Help

Depending on how you qualify for Medicare Extra Help, you will receive either full or partial benefits.

For full benefits in 2023, you must eligible for Medicare, Medicaid or dually covered and have a monthly income up to $1,660 (single) or $2,239 (couples) with assets no greater than $10,590 (single) or $16,630 (couples) in the 48 contiguous states and the District of Columbia. Income and assets requirements are higher for Alaska and Hawaii. Earnings according to the federal poverty limit (FPL) are also taken into consideration.

Full benefits pay for your annual deductibles and monthly premiums. Of course, some Part D plans cost more than others and Medicare takes that into account.

Each state has a benchmark value for how much it will pay towards your monthly premiums. If you pick a more expensive Part D plan, you will have to pay the difference between the benchmark rate and your plan’s rate each month.

Copayments are also reduced. People who are dual eligible and also receive institutionalized, home-based, or community-based care will not pay copayments at all.

Dual eligibles earning less than 100% FPL will pay no more than $1.35 and $4.00 for generic and brand-name medications, respectively. All others will pay no more than $3.95 for generic and $9.85 for brand-name medications. Once you pay $7,050 in out-of-pocket costs for covered drugs, catastrophic coverage begins. You will no longer pay copayments.

Partial Benefits for Medicare Extra Help

For partial benefits in 2022, how much you pay depends on your income based on FPL.

If you earn less than 135% FPL and have a monthly income up to $1,843 (single) or $2,485 (couples) with assets no greater than $16,660 (single) or $33,240 (couples), you will not pay monthly premiums but will pay a $104 annual deductible. Again, these rates are for the 48 contiguous states and the District of Columbia. Eligibility requirements are higher in Alaska and Hawaii.

If you have an income between 135 and 150% FPL, you qualify for Extra Help with a monthly income up to $1,719 (single) or $2,309 (couples) with assets no greater than $15,510 (single) or $30,950 (couples). You will pay monthly premiums on a sliding scale as well as an annual deductible.

Regardless of how you qualify for partial benefits with Extra Help income, coinsurance will be 15% for all drugs until you reach the catastrophic phase of coverage. You will then pay $4.15 for generic and $10.35 for brand-name medications.

When to Sign up or Change Plans

If you qualify for full Medicare Extra Help, one of two things will happen. You can pick a Part D plan yourself or Medicare will pick one for you at the lowest cost.

If you do not pick your own plan, Medicare reserves the right to reassign your plan each calendar year to keep costs down. Generally speaking, it is in your best interest to pick a plan that has all the medications you take on its formulary.

Normally, you would only be able to change Part D plans during the Medicare Open Enrollment Period (October 15 to December 7). Medicare Extra Help, however, offers you quarterly Special Enrollment Periods.

These Special Enrollment Periods allow you to change Part D plans once per quarter during the first three quarters of the year. This can be especially helpful if you are started on a new medication that is not covered by your current Part D plan.

Summary

Extra Help is a low income subsidy offered by the federal government to help decrease prescription drug costs for people on Medicare Part D. Anyone on Medicaid, certain Medicare Savings Programs, and Social Security Insurance (SSI) automatically qualifies for the subsidy. Other people may qualify if they meet certain income and asset limits based on the state they live in.

Not everyone will get the same level of benefits. People who receive full benefits will not pay a deductible and are charged the lowest rates for generic and brand-name drugs. Those with partial benefits may or may not have to pay a deductible depending on their income and asset levels. They also get a decreased rate on their medications although the rates are not as low as for people who get full benefits. In all cases, people save a significant amount on their drugs costs when they are in the program.

A Word From Verywell

Prescription drugs can be expensive. The Part D Low-Income Subsidy, aka Medicare Extra Help, can reduce those costs. While some people are automatically enrolled in the program, you could qualify for the assistance program based on your income and assets. If you are having a difficult time affording your medications, check to see if you meet your state’s eligibility criteria.