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Medicare Part D - Prescription Drug Benefit
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:: A summary of the Medicare Part D Prescription Drug Benefit Program
:: What are the Details of the 2018 Medicare Part D Program?
:: What Governmental Agency is Responsible for Medicare Part D?
:: Which Dates are Important?
:: When Can Seniors Join a Prescription Drug Plan?
:: Calculate an Estimate of Out-Of-Pocket Expenditures for 2018
:: An Example of How the Out-of-Pocket Costs Could Add-up.
:: A Second Example of How the Out-of-Pocket Costs Could Add-up.
:: Still not sure about Out-of-Pocket Costs? Use our Online Cost Estimator.
:: What if a Medicare Beneficiary has Prescription Drug Costs over $7508.75?
:: Will the $5000 Annual Out-of-Pocket Threshold Always Remain the Same?
:: Will there be Additional Financial Assistance Based on Personal Need?
:: Is there any "Penalty" or Cost for Late Enrollment?
:: Which Prescription Drugs are Covered under the Medicare Part D Plans?
:: How Would I Decide if a Medicare Part D Plan is the Right Choice for Me?

The Medicare Prescription Drug, Improvement, and Modernization Act was passed on December 8, 2003. It established a voluntary drug benefit for Medicare beneficiaries and created a new Medicare Part D. Simply put, the Medicare Modernization Act and the Medicare Prescription Drug Improvement feature gave elderly and disabled people already on Medicare access to drug coverage beginning in January of 2006.


A summary of the Medicare Part D Prescription Drug Benefit Program

The Medicare Prescription Drug, Improvement, and Modernization Act expands health care benefits for Medicare beneficiaries. Accordingly, in January, 2006, Medicare will launch Medicare Part D prescription drug plans (PDPs) to help beneficiaries save on prescription drug costs.

In essence, the Medicare Part D Prescription Drug plans are government-sponsored insurance policies (issued by commercial insurance companies), designed to help protect you against the ever rising costs of prescription drugs. Anyone with Medicare Part A or Part B can enroll or switch prescription drug benefit plans each year between October 15th and December 7th. The new plan will take effect on January 1st of the following year.



What are the Details of the 2018 Medicare Part D Program?

In general, Medicare prescription drug plans provide insurance coverage for your prescription drugs. If you join the Medicare Part D there will be a monthly premium of approximately $37.00. Prescription costs will vary depending on the particular drug plan you choose. In more detail:
  • Medicare Part D premiums can vary widely. see: 2018 Tools for links to plan finders.
  • The plans have an annual $405 deductible.
  • After the deductible is met (the insured has paid the first $405), Medicare will pay 75% of the covered prescription costs up to $3345.
  • The insured person pays the remaining 25% ($836.25). These types of plans (that follow the CMS model plan) are using co-insurance: 25% Insured - 75% Insurer.
  • After the $3345, the insured person pays the 100% of the next $3758.75. This is the so called "donut hole" or Coverage Gap. Some plans will provide coverage through the "donut hole", at an additional monthly premium.
  • The insured person then has a co-payment thereafter of 5%.
  • Benefits may vary depending on income levels.
  • Premiums may increase annually.



What Governmental Agency is Responsible for Medicare Part D?

The Centers for Medicare and Medicaid Services (CMS), replacing the Health Care Finance Association (HCFA).


Which Dates are Important?

  • October 15th - December 7th
    Annual Open Enrollment Period for Medicare Part D takes place between these dates.
  • January 1st of the following year.
    The Medicare Part D Prescription Drug Benefit goes into effect.



When Can Seniors Join a Prescription Drug Plan?

If your client currently has Medicare Insurance (Parts A or B), they can joina Medicare Prescription Drug plan between October 15th and December 7th.

Their Medicare Prescription Drug plan coverage will begin on January 1st of the following year.

If they are new to Medicare they have an Initial Enrollment Period (IEP) or if your client has a Special Enrollment Period (SEP), their coverage will begin on the first day of the month after they enroll.



Calculate an Estimate of Out-Of-Pocket Expenditures for 2018

Medicare set the following guidelines for Medicare Part D prescription drug plans, however, available plans may vary from these guidelines.

Monthly Premium - can vary widely. see: 2018 Tools for links to plan finders
Annual Deductible - $405 Paid by the Medicare Beneficiary
Cost of Prescriptions ($406 - $3750) -
25% Paid by the Medicare Beneficiary - 75% Paid by Medicare
Cost of Prescriptions ($3751 - $7508.75) -
100 % Paid by the Medicare Beneficiary - 0% Paid by Medicare
More than $5000 annual out-of-pocket threshold - The Medicare Beneficiary pays the greater of either 5% of the prescription drug costs or $3.35 for generic prescription drugs and $8.35 for brand-name prescription drugs. Medicare Part D pays the lesser of either: 95% of the prescription drug costs or the balance of the prescription drug costs.



An Example of How the Out-of-Pocket Costs Could Add-up.

Here is an example of how the out-of-pocket costs could add-up under Medicare Part D.

If a Medicare beneficiary had prescription drug costs of $5,100 per year, here is how much it would cost the Medicare Part D beneficiary personally or out-of-pocket:
Annual Deductible (or first $405 spent):-$405
25% of ($3750 - $405 = $3345):-$836.25
100% of ($7508.75 - $3750 = $3758.75):-$3758.75
Total Cost to Medicare Beneficiary (out-of-pocket):-$5000

Therefore, our Medicare beneficiary that had Prescription drug costs of $7508.75 would have approximately $5000 of out of pocket or personal costs per year.




A Second Example of How the Out-of-Pocket Costs Could Add-up.

The out of pocket prescription drug costs are calculated on a progressive-like basis (similar to federal income tax). Therefore, in 2018 the beneficiary pays the first $405 himself (as the Medicare Part D Plan deductible). After the deductible, he will need to pay 25% of all prescription drug costs up to a total of $3750. For this example, let us assume that the total yearly prescription drug expenses are $4000. Therefore, he will pay 25% of the difference between the deductible ($405) and $3750 which is: (3750 - 405)*0.25 = $836.25. When he spends more than $3750, he will be responsible for 100% of the difference between $3750 and (as in our example) $4000 or an additional cost of $250.
The total ESTIMATED annual "Out of Pocket" prescription drug cost with a Medicare Part D plan should then be around: $405 + $836.25 + $250 = $1491.25 (plus the monthly premium for the Medicare Part D plan).



Still not sure about Out-of-Pocket Costs? Use our Online Cost Estimator.

If you would like to calculate your "estimated" out of pocket prescription drug costs, we have built a free online Cost Calculator. You need only go to the link below, enter your yearly prescription drug costs and press the "Submit" button.

** Please note: No data will be collected by us and your information remains confidential.



What if a Medicare Beneficiary has Prescription Drug Costs over $7508.75?

Once our example Medicare Beneficiary has spent approximately $5000, the last paragraph of the guidelines goes into effect:

More than $5000 annual out-of-pocket threshold
  • The Medicare Beneficiary pays: the greater of either: (1) 5% of the Prescription Drug Costs or (2) $3.35 for generic Prescription Drugs / $8.35 for brand-name Prescription Drugs.
  • Medicare Pays: the lesser of either: (1) 95% of the Prescription Drug costs or (2) the balance of the Prescription Drug costs.


At this point in our example, the costs to the Medicare beneficiary will depend on the type/cost of prescription medication that is purchased. For example, if the Medicare beneficiary purchases non-generic Prescription drugs costing more than $8.35, the Medicare Beneficiary would need to pay 5% of the total costs.



Will the $5000 Annual Out-of-Pocket Threshold Always Remain the Same?

Probably not, the 2018 annual estimated out-of-pocket threshold of $5000 will increase annually based on average prescription drug expenditures.


Will there be Additional Financial Assistance Based on Personal Need?

The Federal Government will provide an extensive program for people needing financial assistance with the Medicare Part D program. Depending on your income level (or available financial resources), Medicare will provide "extra help" that may cover 85% to 100% of prescription costs and may also pay a part or all of your Medicare Part D premiums. The Social Security Administration may also be able to provide more information (1-800-772-1213). (Please note, your State may also provide additional financial assistance plans.)


Is there any "Penalty" or Cost for Late Enrollment?

Yes, there may be an additional monthly cost to those who do not enroll in a Medicare Part D plan during their initial enrollment period (IEP).

This premium penalty of 1% per month for each month of delayed enrollment will be applied and will stay in effect for life. It is also known as a "life-time premium penalty". The figure for the 1% is determined each year by CMS and published in the Medicare and You Handbook. The 2018 figure is $00.36. The 2007 figure was $0.27.

For example, if the normal cost of a plan during the open enrollment period is $35.00 per month, a person who waits 12 months to enroll in a Medicare Part D plan would add $4.32 a month to their monthly premium (calculated: 12 * $00.36 + $35.00 = $39.32).

Please note, that these penalties or additional costs may not apply if you currently have drug coverage through a former employer or union considered as "credible coverage".



Which Prescription Drugs are Covered under the Medicare Part D Plans?

As noted, the actual details for individual plans have not yet been released. However, every therapeutic category of prescription drugs will be covered under the Medicare Part D prescription drug plans.

Although, it is expected that not every plan will cover each drug. In other words, the prescription drug lists (that is, the type of medication covered by a Medicare Part D plan) probably will vary from plan to plan.

Medicare beneficiaries must therefore choose a plan that best accommodates all of their personal prescription drug needs and financial situation.



How Would I Decide if a Medicare Part D Plan is the Right Choice for Me?

Like any insurance coverage decision, the question of whether to join a Medicare Part D plan depends on your particular situation. There are however, certain simple factors that you can consider in preparation for this question.
For instance:
  • How much do spend each year on prescription drugs?
  • What does the Medicare Part D plan cost each month?
  • Does the Medicare Part D plan cover your particular prescription drugs?
  • What are the Medicare Part D plan's co-payment and deductibles?
  • Do you qualify financially for any "Extra Help" programs?
Please note, as a rough guideline, it is estimated that if you spend as little as $68.00 per month on prescription drugs (or $810.00 per year), you could save money with a Medicare Part D plan (depending on the plan's monthly premium).