Health insurance in the United States is confusing… really confusing. And it gets even more confusing once a person is eligible for Medicare. In the past, Medicare did not cover outpatient prescription medications. However, in 2003, President George W. Bush signed the Medicare Modernization Act that provided a mechanism for prescription drug coverage for American seniors by the creation of Medicare Part D. Today, 50.5 million Americans receive prescription drug benefits through Medicare Part D. But navigating the Part D options can be difficult – and even treacherous.
Categories of Medicare Part D
Overall, 88% of Medicare enrollees have some type of prescription drug insurance. Most have a Medicare Part D plan but about a million Medicare enrollees have drug coverage through employer-sponsored retiree plans and a few million have coverage through federal plans such as the Veterans Administration or TRICARE. Medicare itself does not administer Part D plans – instead, Medicare contracts with various commercial insurance companies to sell and oversee Part D plans. There are four ways of obtaining Part D coverage:
- Non-employer Prescription Drug Plans. These are “stand alone” plans that seniors electively sign up for. Medicare divides the country into 34 different prescription drug plan regions and insurance companies must offer coverage to all Medicare beneficiaries in the given region that it serves. Each insurance company is given an identifier code consisting of four numbers preceded by the letter “S”. This is followed by a hyphen and then a three digit code that corresponds with each of the various prescription drug plan options offered by that particular insurance company. So, for example, United HealthCare sponsored the AARP Preferred Plan and is coded as S5820-004.
- Non-employer Medicare Advantage Prescription Drug Plans. These are Part D plans that are provided to seniors enrolled in various Medicare Advantage Plans (“Medicare Part C”). This essentially combines Medicare Part C with Medicare Part D. Seniors who enroll in these Medicare Advantage Plans are automatically enrolled in the corresponding Part D plan and generally cannot opt out. In fact, if a senior enrolled in a Medicare Advantage plan signs up for a separate Part D drug plan, they will be disenrolled in the Medicare Advantage plan and returned to basic Medicare parts A and B. These drug plans have a similar identification code but start with the letter “H” instead of the letter “S”. Making things even more confusing is that some organizations will have both a Medicare Advantage plan (without drug coverage) and a separate stand-alone Medicare Part D plan. The best way to determine which one a person has is to see if the drug plan starts with an “S” or an “H”.
- Employer-only Group Prescription Drug Plans. These are only available to a specific employer’s (or union’s) employees so seniors not working for that employer cannot enroll in these drug plans.
- Employer-only Group Medicare Advantage Prescription Drug Plans. These are also only available to a specific employer’s (or union’s) employees. Their identification code starts with the letter “E”.
When Medicare Part D was first rolled out in 2006, most Part D prescription drug plans were “stand alone” plans, accounting for 73% of all Part D plans. In 2023, most Part D prescription drug plans were provided through Medicare Advantage plans (56%) and stand-alone plans fell to 44%.
In the past, prescription drug coverage was available through some Medicare Supplemental Insurance policies (also known as “Medigap” policies). These were sold by private health insurance companies to cover what Medicare does not cover. However, Medigap policies can no longer be sold with drug coverage so seniors who purchase a Medigap policy must also purchase a separate Part D prescription drug plan.
When can seniors sign up for a Part D plan?
There are only certain times of the year that a Medicare enrollee can sign up for a Part D plan or switch to a different Part D plan:
- At age 65 when initially enrolling in Medicare Parts A and B.
- During the annual open enrollment period between October 15 and December 7.
- During the annual Medicare Advantage open enrollment period between January 1 and March 31. This is only for seniors who are already enrolled in a Medicare Advantage plan and want to switch to a different Medicare Advantage plan or switch from their Medicare Advantage plan to basic Medicare Parts A and B plus a stand-alone Part D drug plan.
- During a “special enrollment period”. This is only for certain life situations, such as moving to a new address, losing or changing one’s current health insurance coverage, or getting Medicaid.
During the regular open enrollment period, seniors are inundated with phone calls, emails, and letters from insurance companies that administer Medicare Advantage plans and Part D drug plans. These are sales pitches to try to get seniors to enroll or switch to that company’s plans. This is where I have seen many of my patients make costly mistakes – often switching to a lower cost Part D plan only to later find that the new plan does not cover their particular prescription medications.
Choosing a Part D prescription drug plan
Fortunately, Medicare has a very good on-line tool to help seniors choose a Part D prescription drug plan. These are the instructions to tell your patients:
- First, enter your zip code.
- Next, choose whether you want to see Part D plans (stand-alone) or Medicare Advantage plans (the Medicare Advantage plans may include their own Part D drug coverage).
- Next, enter all of the prescription medications that you take including dose and the number of pills used per month.
- Next enter your pharmacies. Because different Part D plans will have different “in-network” and “out-of-network” pharmacies, it is best to enter all of the various pharmacies in your area and also include mail-order pharmacies. Costs for medications at out-of-network pharmacies can be thousands of dollars more than in-network pharmacies.
- This will then bring up a list of all of the Part D (or Medicare Advantage plans) in your area. Each plan will show the monthly premium, the annual deductible, and the monthly drug cost at each of the pharmacies that you previously entered. For many patients, trying to weigh the amount of the monthly premium against the amount of the deductible and the cost of the drugs can be very difficult. The good news is that the on-line tool shows the patient exactly how much they will pay each month for their medications when the costs of the premiums, drugs, and deductibles are all factored together. This “bottom line” amount is very helpful when choosing a specific Part D plan.
Overall cost is an important reason but not the only reason to choose one Part D plan over another. Each plan is also given a star rating score ranging from 1 to 5. This score is based on customer service, enrollee satisfaction, enrollee complaints, ease of getting prescriptions, and drug safety measures. Many patients will place greater value on a high star rating than a low overall cost.
The best plan for one person may not be the best plan for another person, depending on their different drug prescriptions. Therefore, every member of a household who is enrolled in Medicare should do their own search for Part D plans or Medicare Advantage plans. In many cases, it is prudent for spouses to each have plans from different insurance companies.
Drugs that are not covered
Each insurance company sponsoring a Part D prescription drug plan has its own formulary of covered drugs. A drug that is covered by one insurance company’s formulary may not be covered by a different insurance company’s formulary. Moreover, insurance companies change their formularies every year. Many patients do not factor this into their decision-making when switching to a different Part D plan and every January, physicians scramble to change their patients’ prescriptions from a previous medication to a new similar medication that is on the patients’ new formularies. But in addition to insurance company-specific formularies, there are certain classes of medications that are not covered by any Part D plans including:
- Over-the-counter drugs.
- Drugs for weight loss or gain, even if used for non-cosmetic purposes, such as to treat morbid obesity.
- Cough and cold preparations, when prescribed for symptomatic relief only.
- Fertility drugs.
- Erectile dysfunction drugs.
- Cosmetic and hair growth drugs.
- Drugs purchased in another country.
- Vitamins and minerals, except niacin products, Vitamin D analogs (when used for a medically accepted indication), prenatal vitamins and fluoride preparations.
- Drugs that are covered under Medicare Part A or Part B (see below).
And to add to the complexity… In certain situations, medications are not covered by Medicare Part D but are instead covered under a different part of Medicare or covered by the patient.
- Inpatient hospitalization. Medications given during inpatient hospital stays are covered by Medicare Part A (and not Part D).
- Skilled nursing facilities. These stays are considered as inpatient stays. Thus, medications are covered by Medicare Part A.
- Hospice. Medications given for symptom control or pain relief when a patient is enrolled in hospice are covered by Medicare Part A.
- Observation status. When a patient has a hospital stay that is considered “observation status”, it is covered by Medicare Part B (and not Part A). Medications given during an observation stay are covered by Medicare Part D. But medications given while in the hospital are administered through the hospital’s inpatient pharmacy and inpatient pharmacies are considered out-of-network for Medicare Part D. Because of this out-of-network status, patients typically have a significant out-of-pocket cost for medications they receive in the hospital during an observation status stay.
- Outpatient intravenous drugs. Medications that are typically administered in a physician office (rather than being self-administered at home) usually fall under Medicare Part B. These include intravenous chemotherapy drugs given for cancer and intravenous biological drugs given for rheumatologic diseases.
- Drugs delivered via DME (durable medical equipment) devices. Medications given via a home infusion pump or a nebulizer are covered by Medicare Part B. These include insulin when given by an insulin pump and albuterol when given by a nebulizer.
- Vaccines. Most vaccines are covered by Medicare Part D plans. However, four vaccines are covered by Medicare Part B instead. These include vaccinations for: influenza, pneumococcal pneumonia, hepatitis B, and COVID. There are a few other uncommon exceptions where vaccinations are covered by Medicare Part B, such as rabies vaccinations if a person is bitten by an animal. Regardless of whether a vaccination is covered by Medicare Part B or Part D, there is no out-of-pocket co-pay for any vaccination recommended by the CDC.
- Miscellaneous drugs covered by Part B. There are numerous other carve-out exceptions to Medicare drug coverage. In these situations, mediations are covered by Part B (and not Medicare Part D), even when self-administered in the patient’s home. These include:
- Intravenous immunoglobulin
- Blood clotting factors for hemophilia
- Injectable osteoporosis drugs
- Renal dialysis drugs
- Oral chemotherapy drugs
- Oral anti-nausea drugs used for chemotherapy nausea
- Immunosuppressive drugs for organ transplant
- Leqembi (a new Alzheimer’s drug)
- Intravenous feedings and tube feedings
These exceptions are important because they will fall under the Medicare Part A or Part B co-pay and deductibles. For patients with basic Medicare Parts A and B, these costs can be considerable. For patients who additionally have a Medigap policy or who are enrolled in a Medicare Advantage plan, the out-of-pocket costs will vary depending on the terms of their specific policy.
The “donut hole”
This is often referred to as the “coverage gap”. This happens when some patients have a temporary limit on how much the Part D plan will pay for prescription medications. The coverage gap begins after a patient and their drug plan have spent a certain amount for covered drugs ($5,030 in 2024). When the patient enters the coverage gap, drug costs get complicated. While in the coverage gap, the patient is responsible for 25% of the cost of a brand name drug, the manufacturer is responsible for 70% of the cost of the drug, and the insurance company is responsible for 5% of the cost of the drug. In addition, there is a dispensing fee for each drug – 75% of this fee is covered by the insurance company and 25% is covered by the patient. Generic drugs are handled differently in the coverage gap – the patient still pays 25% of the cost but the Part D plan covers the other 75% of the cost.
Once the total out-of-pocket amount paid by the patient exceeds $8,000 (for 2024), the patient moves out of the coverage gap and into “catastrophic coverage”. This means patients only have to pay a minimal copayment (generally 5% or less) for covered Part D drugs for the rest of the calendar year in 2024. However, in 2025, the Medicare Part D out-of-pocket costs will be capped at $2,000!
Once again, the good news is that Medicare’s on-line Part D tool factors in the coverage gap (if any) to show patients how much they will pay for each of their medications for each month of the year.
Some drugs will be cheaper in the future
In 2024, all Medicare Part D plans will include a cap on the price of insulin of $35 per month. Beginning in 2026, Medicare will negotiate prices directly with manufacturers for ten common (but expensive) Part B and Part D drugs:
- Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill
Medicare will expand the number of Part B and Part D drugs subject to subject to price negotiation each year thereafter. By having Medicare negotiate these prices (rather than individual health insurance companies), Medicare can leverage its buying power to lower the cost of these drugs to enrollees.
During a person’s working years, health insurance is fairly straight forward – you either get insurance through your employer or purchase it through the federal government’s Health Insurance Marketplace. These health insurance plans are comprehensive and cover outpatient care, inpatient care, and prescription medications. However, once a person turns 65-years-old, health insurance becomes much more complex. Seniors have to sign up for basic Medicare Parts A and B. But basic Medicare only covers some healthcare costs, in particular it does not cover outpatient prescription medications. So, seniors have to decide whether to purchase an additional Medigap policy plus a stand-alone Part D plan or to purchase a Medicare Advantage plan that includes drug coverage, which is essentially a Medigap policy bundled with a Part D plan. Or, patients who are lower income may qualify to have both Medicaid plus Medicare. Or, patients may elect to just go with basic Medicare Parts A and B and then pay for any additional costs out-of-pocket. Given the high costs of healthcare and given that healthcare needs are often unpredictable after age 65, most seniors either opt to purchase a stand-alone part D plan or a Medicare Advantage plan with drug coverage.
As physicians, it is our responsibility to advise patients in a fiduciary manner. Frequently, we are the only ones who provide unbiased advice when it comes to choosing between different Medicare Part D plans or Medicare Advantage plans. Therefore, it is incumbent on all physicians to understand how these plans work and how various plans differ.
December 19, 2023