Medicare Part D Prescription Drug Plans

Medicare Part D: What is it?

Medicare's prescription drug program was created as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). Although the Act was written into law in 2003, Medicare eligible individuals did not start enrollment into these plans until January 1, 2006. This plan is commonly referred as PDP (Prescription Drug Plan) or simply Part D.

Part D is available to everyone who has Medicare regardless of income or health history. Private insurance companies provide the coverage. The enrollees select a plan from those available in their geographic region and pay the insurer a monthly premium for the coverage. Even though enrollment is voluntary there is a penalty for late enrollment which will be discussed a bit later in this article.

You can elect to enroll in a Medicare Prescription Drug plan in one of two ways:

(1) Stand along prescription drug plans (PDP); or

(2) Medicare Advantage Prescription plans (MA-PD).

The first type of plan covers prescription drug benefits only. These plans were designed for people who choose to stay with traditional fee for service Medicare and need the prescription drug coverage along with a Medicare supplement to round out their medical coverage. Most States have several carriers who offer this coverage on a free standing basis. The plans do vary in areas of monthly premiums, deductibles, copays, formularies, and other cost sharing arrangements.

Medicare Advantage plans, the second broad category of prescription drug plans, not only cover medications but also Medicare approved medical services. These plans are available through private insurers and include HMO, PPO, and Private-Fee-for-Service programs. In the case of Medicare Advantage Plans, the Medicare beneficiary has actually "traded" their traditional Medicare benefits for a Medicare Advantage program. Medicare Advantage plans sometimes provide enrollees wish additional benefits. However, there are frequently restrictions on the doctors and hospitals that they may use for covered medical services.

Enrolling in a Plan

Generally speaking, an individual may enroll in a Prescription Drug Plan during their initial open enrollment period when they first qualify for Medicare Part B. For someone turning age 65, this would be the three months prior to their birthday month, the month of their birthday, and the three months following their birthday month. After, their initial enrollment period (IEP), there is an annual open enrollment period (AEP) when they can change plans. Historically, the annual open enrollment period commences on November 15th and closes on December 31st with enrollments effective the following January 1st. There are other special enrollment periods available to medicare beneficiaries such as when they relocate or leave employer sponsored plans.

For the 2011 plan year, the annual open enrollment period will commence a bit earlier and end prior to the holidays to avoid confusion over deadlines in past years.

The "Standard" Prescription Drug Plan

All of the insurers that participate in the PDP program must offer at least the Standard plan of coverage. Monthly premiums will vary from State to State. However, the average premium for 2010 is expected to be $46.58. The plan deductible for 2010 is $310.

After you pay the yearly deductible, you pay the following amounts for the remainder of 2010,

- 25% of the cost of drugs after the $310 annual deductible until total charges reach $2830

(the plan pays the other 75% of charges); then

- 100% of the next $3610 in total drug charges (often called the donut hole or coverage

gap); then

- 5% of your drug charges or a copay of $2.50 for generic medications or $6.30 whichever is lesser; for the rest of the calendar year after you have spent a total of $4550 out of pocket.

Even though, at a minimum, an insurer must provide a Standard plan, they are permitted to offer plans that do differ in benefits. These other plans usually do away with the deductibles and impose fixed dollar copays for covered medications instead percentage copays. Some of these other plans even cover generic mediations in the "donut hole."

The Late Enrollment Penalty

If you do not have "creditable coverage" from another source, such as an employer plan or the Veterans Administration, and do not sign up for a Medicare prescription drug plan when first eligible, you will, in all likelihood, be charged a penalty for late enrollment. The penalty is based on the number of months that have elapsed since you were first eligible to enroll and when you finally do enroll. A penalty of 1% per month will be levied and that penalty will last for as long as your remain enrolled in a plan. The penalty is based on the average cost of a plan in the year that you finally enroll. For example, if 50 months have elapsed since you were eligible to enroll and the national average cost for a plan in that year was $50, the cost for your plan would be $75- (1.50 times $50). Again, this penalty would be assessed each year into the future for as long as you remain enrolled in a plan.

Financial Help for Those of Modest Means

The Social Security Administration has a program available for those with qualifying incomes called Extra Help. Extra Help can save qualifying individuals as much as $3900 per year. Extra Help can assist with premiums, paying deductibles and copays associated with a Medicare prescription drug plan. To qualify for Extra Help, an individual must be enrolled in a Part D prescription drug plan and for 2010; resouces must be limited to $12,510 for an individual or $25,010 for a married couple. Resources would include things like bank accounts, stocks, bonds, and mutual funds. Houses, cars, life insurance cash values, and money received from relatives or others to pay household expenses do not count as resources. Some individuals with higher annual income may qualify for the Extra Help program. To inquire if you qualify, you can contact the Social Security Administration at 800-772-1213 or visit your local Social Security office.

Using Information Sources To Choose a Plan

There are a number of useful sources to help you learn about the PDP plans available to and help you compare so that you can select the plan that works best for you.

Medicare's Medicare & You 2010 Handbook available at http://www.medicare.gov is an excellent source of information. The handbook lists plans in your area and basic information about cost and plans benefits.

State Health Insurance Assistance Programs and Community Organizations quite are excellent places to find help.

Also, do not forgot your local Medicare certified health insurance agent. Should you or your parents need assistance in selecting a Medicare prescription drug plan, please feel free to contact us at 818-597-2890.

Edward Walden, CLU, RHU, REBC