Neither Part A nor Part B of the traditional Medicare program includes prescription drug coverage. For people over 65 who rely on prescription medication to maintain their health, Medicare Part D provides prescription drug insurance for anybody who qualifies for Part A or Part B regardless of health status or income level.

In order to receive prescription drug coverage, you must enroll in a Medicare drug plan. Part D plans are offered by Medicare-approved private companies. Many Medicare Advantage plans cover both prescription drugs and medical care so long as you have both Part A and Part B. If you have traditional Medicare, you must enroll in a separate Part D plan if you want your medication covered. If you want prescription drug coverage, select the Part D plan you are interested in by enrolling online, over the phone, or by paper application.

Enrolling in prescription drug coverage is completely voluntary for most people—unless you are currently getting your drugs through Medicaid. If you already have sufficient prescription drug coverage through another service, it is not necessary to enroll in a Part D plan. Remember, you will most likely have to pay a premium for your Part D coverage, although there are subsidies available for people with limited incomes.

Part D plans vary in cost and coverage by region and by carrier, so it is important to determine which plan is right for you. Many Part D plans also have a coverage gap, meaning that they will only cover up to a certain dollar amount for your prescription medication. Once you spend more than that amount, you must pay the full cost of your prescription drugs until you reach the out of pocket obligation. After you surpass the out of pocket obligation, you are only responsible for a co-payment. Not all Part D plans cover all the prescription drugs that you may be taking. Your copayment will vary depending on your income and on the types of medication that you need.

Part D plans only cover medically necessary drugs. Part D plans across the board do not offer coverage for cosmetic uses, over the counter drugs, weight loss, or other drugs that are not deemed medically necessary. Drug cost and coverage varies from plan to plan, so it is important to select a plan based on your own personal needs.

The Medicare Donut Hole

Medicare prescription drug coverage (Part D) is currently available through private insurers to anyone with Medicare Parts A & B for an extra monthly premium. Almost all of these prescription drug plans (PDPs) and most Medicare Advantage Plans featuring drug coverage have a coverage gap, also known as “the donut hole.” In practice, this means that after an individual and their drug plan have spent a certain amount of money for covered drugs, the enrollee must pay all subsequent drug costs at retail rate out-of-pocket up to a yearly limit. A person’s yearly deductible, coinsurance/copayments, and what a person pays while in the coverage gap all count toward this out-of-pocket yearly limit. The limit doesn’t include premiums paid monthly or what a person pays for drugs that aren’t covered by the drug plan. This means that while enrollees are in the doughnut hole, the coverage gap can amount to thousands of dollars. In other words, while in the doughnut hole enrollees must pay 47.5% of the retail cost of their drugs until they have spent a set amount.

Some PDPs offer minimal coverage on things like generic drugs while enrollees are in the doughnut hole, though these types of plans will usually charge a higher monthly premium. Once an enrollee reaches the total out-of-pocket limit during the coverage gap, they are bumped into “catastrophic coverage.” Catastrophic coverage guarantees that once an enrollee has spent up to his or her plan’s out-of-pocket limit for covered prescriptions the person will only pay a nominal coinsurance fee or copayment for their drugs for the rest of the year. This works out to the enrollee paying about 5% of subsequent drug costs after the doughnut hole, their plan paying about 15%, and Medicare covering about 80%.

As a result of the Protection and Affordability Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010, the doughnut hole will close by 2020. This reform was deemed necessary given the fact that in 2007 an estimated 3.4 million Part D enrollees fell into the doughnut hole and the coverage gap – now at $4,750 – was projected to exceed $6000 by 2020. This year the doughnut hole will shrink through Part D enrollee, Medicare, and drug manufacturer contributions so that by 2020 enrollees will be responsible for only 25% of their drug costs in the coverage gap. Also in 2011 brand-name drug companies were forced to provide a 50% discount on these prescriptions to enrollees in the doughnut hole and beginning in 2013 Medicare will start providing an additional discount on brand-name drugs up to 25% in 2020. As a result, by 2020 the combination of 25% enrollee, 25% Medicare, and 50% drug manufacturer contribution will effectively close the doughnut hole. With regard to generic drugs, in 2011 Medicare will begin providing discounts on generic drugs increasing annually to 75% by 2020.

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