Medicare Part D is prescription drug coverage. Anyone who is eligible for Medicare is eligible for Part D; however, it is voluntary. In addition, it can be obtained through Original Medicare or through a Medicare Advantage plan. Part D is not financed through payroll taxes and therefore, requires a monthly premium. However, unlike Part B, premiums vary widely depending on the coverage level you choose. On the other hand, similar to Part B, higher-income beneficiaries have to pay an additional premium amount. Regardless of how the beneficiary pays the regular premium, the additional fee is taken out of the beneficiary’s Social Security check in most circumstances (or billed in other ways in certain other circumstances). Whatever level of coverage a Part D beneficiary has chosen, if they are in a higher-income category, they are still required to pay additional fees as determined by the Social Security Administration. In addition, these income thresholds are frozen until 2019 and not increased annually for inflation in order to gradually increase the number of beneficiaries who will fall into these income categories (KFF, 2013; Medicare and health reform, 2011; SSA, 2014a).
If your income is above a certain limit, you’ll pay an income-related monthly adjustment amount in addition to your plan premium.
|If your filing status and yearly income in 2019 was|
|File individual tax return||File joint tax return||File married & separate tax return||You pay each month (in 2019)|
|$88,000 or less||$176,000 or less||$88,000 or less||your plan premium|
|above $88,000 up to $111,000||above $176,000 up to $222,000||not applicable||$12.30 + your plan premium|
|above $111,000 up to $138,000||above $222,000 up to $276,000||not applicable||$31.80 + your plan premium|
|above $138,000 up to $165,000||above $276,000 up to $330,000||not applicable||$51.20 + your plan premium|
|above $165,000 and less than $500,000||above $330,000 and less than $750,000||above $88,000 and less than $412,000||$70.70 + your plan premium|
|$500,000 or above||$750,000 and above||$412,000 and above||$77.10 + your plan premium|
|If your filing status and yearly income in 2018 was|
|File individual tax return||File joint tax return||File married & separate tax return||You pay each month (in 2020)|
|$91,000 or less||$182,000 or less||$91,000 or less||your plan premium|
|above $91,000 up to $114,000||above $182,000 up to $228,000||not applicable||$12.40 + your plan premium|
|above $114,000 up to $142,000||above $228,000 up to $284,000||not applicable||$32.10 + your plan premium|
|above $142,000 up to $170,000||above $284,000 up to $340,000||not applicable||$51.70 + your plan premium|
|above $170,000 and less than $500,000||above $340,000 and less than $750,000||above $91,000 and less than $409,000||$71.30 + your plan premium|
|$500,000 or above||$750,000 and above||$409,000 and above||$77.90 + your plan premium|
Most Medicare drug plans have a coverage gap (also called the “donut hole”). This means there’s a temporary limit on what the drug plan will cover for drugs.
Not everyone will enter the coverage gap. The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs. Once you and your plan have spent $4,430 on covered drugs in 2022 ($4,130 in 2021), you’re in the coverage gap. This amount may change each year. Also, people with Medicare who get Extra Help paying Part D costs won’t enter the coverage gap.
Once you reach the coverage gap, you’ll pay no more than 25% of the cost for your plan’s covered brand-name prescription drugs. You’ll pay this discounted rate if you buy your prescriptions at a pharmacy or order them through the mail. Some plans may offer you even lower costs in the coverage gap. The discount will come off of the price that your plan has set with the pharmacy for that specific drug.
Brand-name prescription drugs
Although you’ll pay no more than 25% of the price for the brand-name drug, almost the full price of the drug will count as out-of-pocket costs to help you get out of the coverage gap. What you pay and what the manufacturer pays (95% of the cost of the drug) will count toward your out-out-pocket spending. Here’s a breakdown:
- Of the total cost of the drug, the manufacturer pays 70% to discount the price for you. Then your plan pays 5% of the cost. Together, the manufacturer and plan cover 75% of the cost. You pay 25% of the cost of the drug.
- There’s also a dispensing fee. Your plan pays 75% of the fee, and you pay 25% of the fee.
What the drug plan pays toward the drug cost (5% of the cost) and dispensing fee (75% of the fee) aren’t counted toward your out-of-pocket spending.
If you have a Medicare drug plan that already includes coverage in the gap, you may get a discount after your plan’s coverage has been applied to the drug’s price. The discount for brand-name drugs will apply to the remaining amount that you owe.
Medicare will pay 75% of the price for generic drugs during the coverage gap. You’ll pay the remaining 25% of the price. The coverage for generic drugs works differently from the discount for brand-name drugs. For generic drugs, only the amount you pay will count toward getting you out of the coverage gap.
If you have a Medicare drug plan that already includes coverage in the gap, you may get a discount after your plan’s coverage has been applied to the drug’s price.
Items that count towards the coverage gap
- Your yearly deductible, coinsurance, and copayments
- The discount you get on brand-name drugs in the coverage gap
- What you pay in the coverage gap
Items that don’t count towards the coverage gap
- The drug plan premium
- Pharmacy dispensing fee
- What you pay for drugs that aren’t covered
In order to determine whether or not to choose Part D and what Part D plan is right for you, it is important to understand:
- if the prescriptions you take are covered;
- how much they cost;
- if the plan premiums are worth it for your situation; and
- if you want an upgraded plan that may not have a deductible or has better coverage than the Standard Medicare Part D plan.
This can be difficult, but worth the extra work in the long run. Something else to consider is generics versus brand names. This is because they are treated very differently when calculating your catastrophic coverage threshold. The best way to illustrate this is through concrete examples.
***DISCLAIMER: In the following examples, coinsurance and copays are for example purposes only and are NOT Medicare determined amounts. Coinsurance and copays are determined by the drug plan you choose. In addition, the $2 dispensing fee is not calculated for simplicity purposes. Furthermore, retail costs are made up amounts for example purposes and can vary by plan (i.e. the same prescription can have a different retail price between different drug plans). The examples below do not include all months in the year, as once you hit catastrophic coverage, this remains the same until January 1st of the following year.
Brand-name drug example:
Mrs. Anderson reaches the coverage gap in her Medicare drug plan. She goes to her pharmacy to fill a prescription for a covered brand-name drug. The price for the drug is $60, and there’s a $2 dispensing fee that gets added to the cost, making the total price $62. Mrs. Anderson pays 25% of the total cost ($62 x .25 = $15.50).
The amount Mrs. Anderson pays ($15.50) plus the manufacturer discount payment of $42 ($60 x .70 = $42) count as out-of-pocket spending. So, $57.50 counts as out-of-pocket spending and helps Mrs. Anderson get out of the coverage gap. The remaining $4.50, which is 5% of the drug cost ($3) and 75% of the dispensing fee ($1.50) paid by the drug plan, doesn’t count toward Mrs. Anderson’s out-of-pocket spending.
Generic drug example:
EXAMPLE Mr. Evans reaches the coverage gap in his Medicare drug plan. He goes to his pharmacy to fill a prescription for a covered generic drug. The price for the drug is $20, and there’s a $2 dispensing fee that gets added to the cost. Mr. Evans will pay 25% of the plan’s cost for the drug and dispensing fee ($22 x .25 = $5.50). The $5.50 he pays will be counted as out-of-pocket spending to help him get out of the coverage gap.
Extra help/Low-income subsidy (LIS). If you meet certain income and resource limits, you may qualify for a program called Extra Help from Medicare to pay the prescription costs, premiums, deductibles, and coinsurance of Medicare prescription drug coverage.
Some people pay only a portion of their Medicare drug plan premiums and deductibles based on their income level.
In 2019, you may qualify if you have up to $18,735 in yearly income ($25,365 for a married couple) and up to $14,390 in resources ($28,720 for a married couple).
If you don’t qualify for Extra Help, your state may have programs that can help with prescription costs. Contact your Medicaid office or your State Health Insurance Assistance Program (SHIP) for more information. Remember, you can reapply for Extra Help at any time if your income and resources change.
Note that Extra Help is not available in Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa (DHHS, 2014). Programs vary in these areas. Call or visit your Medicaid office to learn more.
There are ways to automatically qualify for Extra Help, if you have Medicare and meet any of these conditions:
- Have full Medicaid coverage;
- Get help from your state Medicaid program to pay your Part B premiums (from a Medicare Savings program); and
- Get Supplemental Security Income (SSI) benefits.
Even if you do not automatically qualify, you can still apply at any time if you think you should be eligible. You can do this by going to the social security website (www.socialsecurity.gov/i1020); calling Social Security (800-772-1213); going to your local state Medical Assistance office (Medicaid); or calling Medicare (800-Medicare) (DHHS, 2014).
State Pharmaceutical Assistance Program (SPAP). Another way to receive assistance with paying for prescriptions drugs and premiums while on Medicare is through a SPAP program. SPAP is offered through individual states. Some states offer more than one type of program, but not all states have a program. In addition, each of these programs have their own eligibility guidelines regarding income level, resources, residency, etc. Some states also provide assistance for the disabled, as well as people with very specific illnesses, such as HIV or diabetes. In addition to many of the states, the U.S. Virgin Islands also offers SPAP (SPAP, n.d.).
Part D late enrollment penalty
The late enrollment penalty is an amount added to your Medicare Part D monthly premium. You may owe a late enrollment penalty if, for any continuous period of 63 days or more after your Initial Enrollment Period is over, you go without one of these:
- A Medicare Prescription Drug Plan (Part D);
- A Medicare Advantage Plan (Part C) or another Medicare health plan that offers Medicare prescription drug coverage; or
- Creditable prescription drug coverage.
How much is the Part D penalty?
The cost of the late enrollment penalty depends on how long you went without Part D or creditable prescription drug coverage.
Medicare calculates the penalty by multiplying 1% of the “national base beneficiary premium” ($33.19 in 2019 and $32.74 in 2020) times the number of full, uncovered months you didn’t have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium.
The national base beneficiary premium may increase each year, so your penalty amount may also increase each year.
Mrs. Martinez is currently eligible for Medicare, and her Initial Enrollment Period ended on May 31, 2016. She doesn’t have prescription drug coverage from any other source. She didn’t join by May 31, 2016, and instead joined during the Open Enrollment Period that ended December 7, 2018. Her drug coverage was effective January 1, 2019.
Since Mrs. Martinez was without creditable prescription drug coverage from June 2016–December 2018, her penalty in 2019 was 31% (1% for each of the 31 months) of $33.19 (the national base beneficiary premium for 2019) or $10.29. Since the monthly penalty is always rounded to the nearest $0.10, she paid $10.30 each month in addition to her plan’s monthly premium.
Here’s the math:
.31 (31% penalty) × $33.19 (2019 base beneficiary premium) = $10.29
$10.29 rounded to the nearest $0.10 = $10.30
$10.30 = Mrs. Martinez’s monthly late enrollment penalty for 2019
In 2020, Medicare recalculated Mrs. Martinez’s penalty using the 2020 base beneficiary premium ($32.74). So, Mrs. Martinez’s new monthly penalty in 2020 is 31% of $32.74 or $10.15 each month. Since the monthly penalty is always rounded to the nearest $0.10, she pays $10.20 each month in addition to her plan’s monthly premium.
Here’s the math:
.31 (31% penalty) × $32.74 (2020 base beneficiary premium) = $10.15
$10.15 rounded to the nearest $0.10 = $10.20
$10.20 = Mrs. Martinez’s monthly late enrollment penalty for 2020
How do I know if I owe a penalty?
After you join a Medicare drug plan, the plan will tell you if you owe a penalty and what your premium will be. In general, you’ll have to pay this penalty for as long as you have a Medicare drug plan.
What if I don’t agree with the late enrollment penalty?
You may be able to ask for a “reconsideration.” Your drug plan will send information about how to request a reconsideration. Complete the form, and return it to the address or fax number listed on the form. You must do this within 60 days from the date on the letter telling you that you owe a late enrollment penalty. Also send any proof that supports your case, like a copy of your notice of creditable prescription drug coverage from an employer or union plan.
Do I have to pay the penalty even if I don’t agree with it?
By law, the late enrollment penalty is part of the premium, so you must pay the penalty with the premium. You must also pay the penalty even if you’ve asked for a reconsideration. Medicare drug plans can disenroll members who don’t pay their premiums, including the late enrollment penalty portion of the premium.
How soon will I get a reconsideration decision?
In general, Medicare’s contractor makes reconsideration decisions within 90 days. The contractor will try to make a decision as quickly as possible. However, you may request an extension. Or, for good cause, Medicare’s contractor may take an additional 14 days to resolve your case.
What happens if Medicare’s contractor decides the penalty is wrong?
If Medicare’s contractor decides that all or part of your late enrollment penalty is wrong, the Medicare contractor will send you and your drug plan a letter explaining its decision. Your Medicare drug plan will remove or reduce your late enrollment penalty. The plan will send you a letter that shows the correct premium amount and explains whether you’ll get a refund.
What happens if Medicare’s contractor decides the penalty is correct?
If Medicare’s contractor decides that your late enrollment penalty is correct, the Medicare contractor will send you a letter explaining the decision, and you must pay the penalty.