Back to Basics – Medicare’s Prescription Drug Program

I thought this week would be a good time to get back to basics on Medicare’s prescription drug program. I realize that any “back to basic” blog has the potential to be boring but stay with me on this. I think that almost everyone will find out something about their prescription drug coverage that they didn’t know.

I do realize that some of you may not have your prescription drugs covered under Medicare; you may be covered under a commercial prescription drug program as part of your employer’s employee or retired insurance benefit. If this is the case in your situation it still might be worth your while to read on. Some of this information is relevant to commercial insurance. I also will be talking mostly about the standard Medicare Part D plan for standard Prescription Drug Plans (PDP). Having said that, much of the information and nomenclature will also apply to Medicare Advantage (MA) Part D benefits.

There are important words and phrases that you need to understand as you deal with your prescription drug costs.

• Deductible – Most of us have dealt with deductibles over the years with our commercial plans. Many types of insurance have a certain amount you pay before your insurance starts to help with paying costs. Under PDP’s the yearly deductible in 2021 was $445; after that you had to pay Coinsurance.
• Coinsurance – This is where you pay a percentage of the drug cost. In Part D you pay 25% of the drug cost until you reach the TrOOP limit.
• TrOOP – The True Out Of Pocket cost. When you’ve paid $6,550 you reach the catastrophic coverage period in your Part D prescription drug plan; at this point, the beneficiary pays $3.70 for a generic or preferred drug and $9.20 for other drugs, or 5% coinsurance, whichever is greater.

While the amounts and rules of the phrases above may not be the same in a Medicare Advantage prescription drug program, the general meaning and importance do apply. There are two other words that are important as you review your drug coverage each year.

• Formulary – The formulary is the list of drugs that are covered and available in a specific drug plan.
• Tier – Drugs in a plan’s formulary can be placed in different tiers. These tiers are important because your out-of-pocket costs may be different depending on which tier your drug is in.

You can see why the formulary and tier are important considerations as you choose your Part D plan in a PDP or a MA drug plan.

The Medicare Part B benefit is another program where you may receive prescription drugs. Part D drugs are usually obtained at the drug store while Part B drugs are administered or obtained at a doctor’s office or as an outpatient at a hospital. The Part B drugs are often injectable, which frequently requires a doctor’s office visit. An example of this type of drug is treatment for cancer. These Part B drugs are often expensive and it's one of the primary places where the government would like to control prices. Part D and Part B are two Medicare benefits where we are required to pay monthly premiums.

The Part D premiums have stayed very stable over the last ten years, with the average premium being $38 per month in 2012, going to a high of $41 per month a few years later and returning to $38 in 2022. These premiums are an average of the premiums paid by seniors for different types of Part D coverage administered by private health plans in different states. Most states had over 20 different prescription drug insurance plans to choose from. That type of premium stability is unbelievable, especially in these days of inflation. I credit most of the stability to competition with maybe a touch of plan design and cost shifting thrown in.

The Part B premiums are more expensive and reflect what the government spent on funding this benefit. They were $148 per month in 2021 but went up to $170 per month in 2022. This was the largest increase ever. Some of the increase was because of increased utilization and the government’s reduction of the calculated premium last year due to COVID-19. The premium, according to the government, was also affected by "the uncertainty” regarding the potential use of the Alzheimer's drug Aduhelm by people with Medicare. The secretary of Health and Human Services has requested that Medicare reassess the premium cost. There’s a chance we might get a refund!

One of the things some people don’t realize is that the Part D and Part B premium costs will go up depending on your income. This is due to IRMAA (not your aunt Irma but the Income-Related Monthly Adjustment Amount.) For Part D there’s a monthly premium add-on of $12.30 if your joint income is above $176,000 per year. The monthly premium add-on continues to go up until it equals $77.10 a month for a joint income over $750,000. For Part B the monthly premium add-on is $68.00 if your joint income is above $183,000 a year. It continues to go up until it equals $408.20 a month for joint income above $750,000. Some may ask (me included) why our income should determine the amount we pay when we all paid into the program our whole life an amount that was based on our income. That’s not an issue to explore today but perhaps in a future blog, just a minor rant today I had to get out of my system

The CMS website is a great place to find a lot more detail about your prescription drug benefits. You will be able to dig as deep as you like to find out a lot more about this great benefit.

One thing to know, there is a lot to consider as you make your initial choice of a prescription drug program or as you do your yearly review. The lack of standardization, especially among the tiered plans, means that it is virtually impossible to compare plans and Part D cost-sharing without the use of CMS’s online Plan Finder tool. While the Plan Finder is relatively easy to use, Medicare beneficiaries who lack confidence in their computer skills should ask family, friends, their local pharmacy, or their area State Health Insurance Assistance Program (SHIP) agency to help them compare plans on the Plan Finder. There are resources out there to help you.

I hope you found out something new about Medicare Part D. It’s a great benefit that continues to be a life enhancing and lifesaving program.

Best, Thair