How does the prescription drug plan work?

Medicare’s prescription drug plan is referred to as Medicare Part D. This can be added to Original Medicare (Parts A and B) or you can get it as part of a Medicare Advantage Plan (Part C). As with the other parts of Medicare, members have a choice of plans and carriers. 

Each plan will have its own formulary - the plan’s list of covered medications. These plans often place medications into different tiers on the formulary. Different tiers have different costs. (The lower the tier, the lower the cost.) 

There is one key difference between Medicare Part D and insurance plans that are not associated with Medicare (like those through an employer). 

That key difference is called the Coverage Gap, AKA The Donut Hole.

The Medicare Donut Hole is a gap inside every single Part D plan. When a member has spent more than the initial coverage limit, they will find themselves in the Donut Hole. 

This means that the same prescriptions that had been covered (or partially covered), will now cost more than they did prior to reaching the initial limit.

Once a member is in the Donut Hole, their out-of-pocket cost increases to 25% of the drug’s price. But don't worry, there is a way to get out of the Donut Hole. 

Once a member has reached their out-of-pocket threshold, catastrophic coverage applies. 

In 2021, the member AND the insurance company will pay $4130 for medications before entering the donut hole.  In order to get out of the donut hole, they'll have to meet $6550, which is the catastrophic threshold.  

Note that to get into the Donut Hole the insurance company's portion counts, but to get out of the Donut Hole, only the member's payments couont.

One last thing to note about Medicare Part D.

If a member does not enroll when first eligible (or have creditable coverage if they postpone enrollment) a 1% penalty applies. This penalty builds monthly and the member will pay this penalty for a lifetime. 

This Part D penalty is the most common of the Medicare penalties. It is especially overlooked by those members who do not currently take medications. Members should apply for coverage regardless of whether they are currently taking prescription drugs or not. 

Working with a knowledgeable agent is the best way to avoid this penalty and pick the prescription drug plan that best fits the member’s needs. We can help you find a licensed insurance agent near you!