Prescription Drugs

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Prescription drugs are the biggest out-of-pocket medical expense for most seniors. In addition, until recently there was very little medicare supplemental insurance coverage for those drugs -- which have become increasingly expensive.

Choices for having some prescription drug coverage include:

  • Medicare Part D: Since 2006, seniors have been able to enroll in a Medicare Drug Plan. There are a variety of prescription drug coverage options offered by private insurers. The Medicare Drug Plan, called Part D, is an additional type of Medicare supplemental insurance -- like Medigap or Medicare Advantage but it exclusively covers prescription drugs.

    Like all Medicare supplemental insurance options -- you are required to be enrolled in Medicare Part A and Medicare Part B and be up to date with your Medicare Part B premiums.

    While plans vary, the costs for these plans are generally around a $39 monthly premium and you pay the first $310 per year for your prescriptions (your deductible). You then pay 25 percent of your drug costs until you have spent $2,830 a year. You then pay 100 percent of your prescription costs until your out-of-pocket spending reaches $4,550. After you have spent $4,550, you only pay a small co-payment (usually 5% of cost) for the rest of the calendar year for additional drug spending.

    These laws continue to shift, thanks in part to the Patient Protection and Affordable Care Act of 2010, which should gradually eliminate the middle 100% cost between $2,830 and $4,550 per year over the course of the next decade.
  • Retiree Plans: If your employer offers a retiree health plan that includes prescription drug benefits, this may be the best way to have coverage for drugs. However, be aware that your employer can change or drop coverage at will.
  • Medigap and Medicare Advantage: Choose Medicare Supplemental Plans for Prescription Drug Coverage:
    • Some Medicare Advantage plans offer drug coverage
    • Medigap policies H, I and J offer some drug coverage. However, these policies will not be available after 2006 because the government is introducing the Medicare Drug Plan.

Medicare Part D

Prescription drugs are the biggest out-of-pocket medical expense for most seniors. Worst of all, until several years ago there was very little medicare supplemental insurance coverage for those drugs -- which have become increasingly expensive.

Drug Discount Cards as well as Medigap policies H, I and J did offer some drug coverage to seniors. However, these policies have been replaced by Medicare Part D.

In 2003 Congress passed Medicare Prescription Drug Benefit legislation. This legislation was intended to assist senior citizens with their prescription drug costs by supplementing Medicare Parts A and B with prescription drug coverage.

Medicare Part D is an additional type of Medicare supplemental insurance -- like Medigap or Medicare Advantage -- but it exclusively covers prescription drugs.

The coverage went into effect on January 1, 2006, and is estimated to fully or partially cover more that 39 million Americans as of 2010.

Are There Other Options Besides Medicare Part D for Prescription Drug Coverage for Seniors?

Medicare Part D has proven to be the most popular prescription drug coverage option for most seniors. However, retirees do have other options – many of which may offer more comprehensive or cost effective coverage than Medicare -- including:

  • Retiree Plans: If your employer offers a retiree health plan that includes prescription drug benefits, this may be the best way to have coverage for drugs. However, be aware that your employer can change or drop coverage at will.
  • Medicare Advantage: Some Medicare Advantage plans offer drug coverage.

However, these plans may change with the introduction of the Medicare Prescription Drug program. It is very important to talk with your insurer about changes. Your insurer may now require that you also be enrolled in the Medicare Prescription Drug Program.

Who Can Enroll in Medicare Part D and When?

Like all Medicare supplemental insurance options -- you are required to be enrolled in Medicare Part A and Medicare Part B and be up to date with your Medicare premiums.

You can sign up for one of these new plans any time.

How Much Does Medicare Part D Cost?

While plans will vary, the costs for a Medicare Prescription Drug Benefit Program will include:

A Monthly Premium: Most plans will charge approximately $39 a month – this is the basic cost for being enrolled in the program.

Deductibles: For most plans, you will pay the first $310 per year for your prescriptions (your deductible).

Co-payments: After you have spent the first $310 for prescription drugs, you will then pay 25 percent of your drug costs until you have spent $2,830 a year. This is your co-payment. The insurer will pay the other 75 percent of the cost of the drugs.

If you need to spend more than $2,830 in the year for prescription drugs, you will then pay 100 percent of your prescription costs until your out-of-pocket spending reaches $4,550. After you have spent $4,550, you will only pay a small co-payment for the rest of the calendar year for additional drug spending. This gap in coverage is called the prescription drug "donut hole" and is scheduled to be phased out of existence by 2020.

Cost Summary

This cost structure can be confusing. It might help you to evaluate the fixed and variable costs.

Yearly Fixed Costs:
$39 a month x 12 months = $468

Yearly Variable Costs
Depending on whether or not you require drugs and how many, you will pay:
Between $0 - $310 a year for your deductible
Between $0 - $4,550++ a year for co-payments

TOTAL VARIBLE COSTS: $0 - $4,860 plus nominal additional co-payments after you have spent $4,550 for prescription drugs.

TOTAL COSTS FOR A MEDICARE PRESCRIPTION DRUG PLAN: Between $468 - $5,018+

What Do the Plans Cover? Should Everyone Sign Up?

The Prescription Drug Plans, also known as Medicare Part D, can be a great addition to your medical coverage – though it is not cost effective for everyone. And, choosing the right plan can be a very complex and confusing process.

The plans vary greatly and there are around 40 different options available in most states.

When choosing whether or not to enroll in a plan and deciding which plan is best for you – consider the following questions carefully.

What drugs are covered by the plan?

Not all drugs are covered by all plans. Drugs that treat such disorders as anorexia, erectile disfunction, or cosmetic disorders are not covered, as are drugs that do not meet certain federal standards for qualification. For any plan you are considering you need to make sure that they cover the prescription drugs you need now or think you might need in the future.

If you need a drug not covered by your plan, you will pay for it out of pocket.

Where can I purchase these drugs?

In most cases you must go to the pharmacy listed on the insurance plan that you select. If you purchase your drugs elsewhere then you will have to pay the whole cost yourself.

You need to make sure that the pharmacy that you use or could use is a subscriber in the plan.

What are the co-payments?

Some plans will offer lower deductibles but higher co-payments and visa versa.

How does the plan handle generic drugs?

Some plans will require that you purchase the generic brand of the drug. If you opt for the name-brand you will pay a higher co-pay or even full price.

What is in the fine print?

The insurance companies are allowed to change the list of drugs that they cover or raise the price of these drugs. They are only required to give you 60 days notice first.

Be sure to understand what you can do if changes like this are made to the plan. What appeal rights do you have and where do you start?

Most importantly, will a prescription drug insurance plan be cost effective for you?

The most important question that needs to be answered is whether you need this Prescription Drug Benefit insurance plan now? Are the total costs associated with one or the other of these plans more or less than your current out of pocket costs for your prescription drugs?

Even if your current costs are lower than the total cost of one of these prescription drug plans, there is the unknown factor of whether your costs, as you continue to age, will rise and exceed the plans' costs.

Plus there is an incentive for signing up immediately; for every month that you delay, the premium goes up.

Low Income Assistance

The premiums charged for a Prescription Drug Benefit Insurance plan are income and asset dependent. So if you think that you may qualify for a reduced premium, you will have to submit financial information to determine if you indeed qualify for a lower premium or deductible. Depending on your income and net worth, you could qualify for low-income assistance and you may end up not having to pay anything at all.

There is a useful cost calculator at the U.S. Medicare web site that will help you determine this eligibility:

http://www.medicare.gov/medicarereform/drugbenefit.asp

How Do You Research These Prescription Drug Benefit Plans and Sign Up?

There are various ways to learn more about a Prescription Drug Benefit Insurance Plan.

  • NewRetirement.com can connect you with a prescreened Medicare supplemental insurance provider who can guide you through the various options.
  • If you have a Medicare card, you should have received the 2006 "Medicare & You" booklet, which describes the new Medicare Prescription Drug Plans being offered by private insurance companies who have signed up as providers under the Medicare Prescription Drug Benefit program. If you haven't received this booklet, your nearest Social Security Office will have copies available.
  • The Medicare web site is an excellent source of information.
  • You can telephone Medicare and request more information at (800) 633-4227 (MEDICARE).
  • Many local Social Security offices and Senior Citizen Centers are sponsoring meetings to help seniors understand these programs. Check listings in local newspapers, newsletters, and bulletin boards.

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