Medicare 101: Prescription Drug (Part D) Plans

Medicare 101: Prescription Drug (Part D) Plans
Eileen St. Pierre, The Everyday Financial Planner

Medicare open enrollment currently runs until December 7. It is during this time period that you can make changes to your 2014 Medicare plan options. You may be thinking about switching plan providers. For example, you may be considering changing prescription drug plans.

Part D Basics

Medicare Part D is prescription drug coverage. According to USA Today, 22.7 million Medicare beneficiaries (43%) are enrolled in Part D plans. Signing up for Part D is voluntary, and you will pay an additional monthly premium. For 2014, the average monthly premium will be $31 and the deductible will decline by $15 to $310.

You can wait to enroll in Medicare Part D if you have other prescription drug coverage, but you will pay a penalty if you wait to join later.

  • An extra 1% of the national average premium will be added to your premium each month that you delay. You will have to pay this penalty for as long as you have Part D coverage.
  • This means if you delay for 20 months, your Part D premiums will always be 20% more than other people pay or what you would have paid if you would have signed up on time.

To find the right Part D plan for you, use the online Medicare Plan Finder. Because of the recent government shutdown, there may be a delay in all the information being updated. However, unlike the Healthcare.gov website, at least the Plan Finder works.

The Plan Finder will also tell you what your drugs will cost at three different levels: initial coverage, coverage gap (donut hole), and catastrophic coverage.

The Donut Hole

There is a gap in coverage in Part D called the donut hole. Here is how the donut hole works in 2014:

  • You will have to pay up to the first $310 of your drug costs as a deductible. After that, your drug plan will pay 75% of your covered prescriptions (you pay the other 25%) until the total drug costs including the deductible reach $2,850.
  • Now you are in the donut hole. You pay 100% of your drug costs up until you reach an out-of-pocket threshold of $4,550. You will receive a 52.5% discount on brand-name drugs and a 28% discount on generic drugs. Your pharmacist will automatically calculate this discount for you.
  • After this point, you have reached catastrophic coverage. Your drug plan pays 95% of your drug costs for the remainder of the year (you pay the other 5%).

For additional information, download the Official 2014 Medicare Handbook.

Visit my Financial Planning for Later in Life page for more information.