Medicare Part D Basics For 2022
Before Medicare Part D was signed into law in 2003, and launched in 2006, Medicare beneficiaries had very few options to help cover the cost of their prescription medications, which were rapidly rising during that time:
• Group/union coverage
• Retiree coverage
• Medicare Supplement Plan J (only offered catastrophic coverage)
Today, 77% of all Medicare beneficiaries are enrolled into a Part D plan.
Part D Basics
Medicare Part D is a voluntary benefit, meaning that individuals that qualify (must have either Part A or Part B) do not have to enroll into it. It’s only offered through private insurance companies and is available as either a stand-alone plan, or PDP, or combined with a Medicare Advantage plan, often referred to as MAPD (Medicare Advantage Prescription Drug). Benefits for Part D plans change each calendar year and provide coverage for both generic and brand name medications.
Beneficiaries can only enroll or change plans during a valid enrollment period:
• Initial Enrollment Period – 3 months before, the month of, and three months after their Part A or Part B start date (whichever comes first)
• Annual Enrollment Period – October 15 through December 7 each year. Benefits start the following January 1st
• Special Election Period – these are specific situations that can happen throughout the year, and are usually tied to a change in their current benefits. Some of the most common SEPs for Part D coverage include loss of group coverage, loss of creditable coverage (prescription coverage that’s at least as good as Part D coverage), change of residence, and qualifying for Extra Help.
Premiums can vary widely for Part D coverage, depending on whether or not the beneficiary has a stand-alone Part D plan or a combined MAPD plan. All stand-alone Part D plans will have a monthly premium and will vary by carrier and state, and some MAPD plans offer coverage for a $0 monthly premium. All PDP and MAPD plans will offer three methods to pay for premiums, including:
• Automatic monthly bank draft from a checking or savings account
• Monthly coupon book
• SSA deduction. NOTE: If a beneficiary elects to pay their premium from their SSA check, they may be required to pay the first 1-2 month’s premium directly to the carrier as there can be a delay in processing.
Late Enrollment Penalty
Even through Part D is a voluntary benefit, if there is a delay in coverage from when they’re first eligible to sign up they could be assessed a Late Enrollment Penalty (LEP). The LEP is calculated using the “national base beneficiary premium” and will permanently be attached to the beneficiary’s Part D coverage, regardless if they have a PDP or MAPD plan. For each month after their IEP has ended that there’s a break in coverage of 63 or more days in a row, they will be penalized 1%. The national base beneficiary premium for 2022 is $33.37.
For example: Client went 20 months after their IEP without creditable prescription drug coverage > $33.37 x .20 (20%) = $6.67 will be added to their premium each month.
Examples of creditable coverage include employer/union group coverage, retiree coverage, VA coverage, state pharmaceutical assistance programs.
Each year the Centers for Medicare and Medicaid Services (CMS) release a standard benefit for insurance companies to build their plans around. In the standard benefit, there are four coverage stages: deductible, initial coverage limit, coverage gap (aka donut hole), and catastrophic coverage.
The Yearly Deductible is the amount that a beneficiary must pay out of their pocket before the plan starts to pay their share for covered medications. Deductibles can vary between plans, with some plans having no deductible or limiting the deductible only to specific drug tiers. No plan may have a deductible more than $480 in 2022.
The Initial Coverage Limit (ICL) is a combination of what is spent by the beneficiary and the plan for covered medications, this amount is $4,430 in 2022.
The ICL is important because it will determine if the beneficiary will pay their copay/coinsurance for their monthly prescriptions during the year or if they will enter the donut hole where coverage changes. Essentially, you can consider the ICL to be the total retail cost of the beneficiary’s medications. For example – beneficiary spent $600 in copays during the ICL and the plan spent $3,830, totaling $4,430 and now the client enters the coverage gap with only $600 in out-of-pocket spending.
Coverage Gap (Donut Hole)
Once the beneficiary and the plan have spent $4,430 on covered drugs, they move into the Coverage Gap. During the coverage gap, they will pay no more than 25% of the retail cost of their covered medications and will pay those amounts until they’ve spent $7,050 in out-of-pocket costs.
Based on our previous example, the beneficiary has already satisfied $600 of that cost during their initial coverage limit, so they would need to spend another $6,450 to move on to the Catastrophic Coverage stage.
During the Coverage Gap, the amount beneficiaries pay for their medications (the 25%) and the discount they’re receiving on brand name drugs (70%) will count towards their $7,050 limit.
For example: beneficiary is in the donut hole and has a brand name medication that retails for $100. At the pharmacy county they are only spending $25 out of their pocket, but $95 is going towards the $7,050 limit. On the other hand, their $10 retail cost generic is costing $2.50 at the pharmacy but only $2.50 is going towards the $7,050 limit.
If the beneficiary has reached $7,050 in “out of pocket” costs, they enter the final stage of their plan which is Catastrophic Coverage, and will remain there until the end of the calendar year.
During the catastrophic coverage phase, beneficiaries will pay the greater of:
• 5% of the retail drug cost, or
• $3.95 for generic/multi-source brand drugs, and
• $9.85 for all other medications
Each Part D plan has a list of covered medications, called a Formulary. This list will include both brand name and generic medications, and must cover at least two options for every therapeutic class of drugs. In order for a beneficiary’s plan to cover their prescriptions, they must be included on the plan’s specific formulary.
In the event a beneficiary is prescribed a medication that is not on their plan’s formulary, they can request a Formulary Exception to have the drug covered under their plan. If there’s a medication at a high tier and is unaffordable for the beneficiary, they can request that drug to be moved to a lower tier by requesting a tier reduction. Both of these requests are handled on a case by case basis and any exception/reduction would be for the individual beneficiary only.
Each Part D plan will have its own network of participating pharmacies that plan members must utilize in order to have their prescriptions covered. Some plans utilize a preferred pharmacy network, meaning specific locations in the plan’s directory may offer covered prescriptions at a lower copay/coinsurance. Unless it’s an emergency situation, prescriptions that are filled at non-network pharmacies will not be covered. Also, plans offer the option to have medications delivered through a mail order pharmacy
Extra Help, also known as Low Income Subsidy (LIS), is a benefit provided by Social Security for Medicare beneficiaries with limited income and resources. If they quality, Extra Help will provide financial assistance with their Part D plan, including:
• Monthly premium
• Late enrollment penalties, if applicable
• Annual deductibles, if applicable
• Copays & coinsurances
• Coverage Gap
Beneficiaries should reach out to their local Social Security office for more information and to apply, or can apply online through www.ssa.gov/prescriptionhelp