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Sound Advice: November 3, 2021

Medicare 201 

Coverage of outpatient prescription drugs under Medicare Part D began on January 1, 2006.  Part D is an optional plan that is available to everyone enrolled in Medicare Part A and Part B.  There are numerous plans available and there are considerable differences in ongoing plan prices as well as drug costs.

Let’s begin with some basics.  One of the most important is the formulary, the list of prescription drugs (both name brand and generic) preferred by the health plan.  There are copays for those that are on the list.  For drugs not on the list, the patient may have to pay full price.  Formularies change annually and drugs that have been included in the formulary may switch from preferred to nonpreferred or be removed entirely.

Within the formulary there are different tiers for the drugs included.  Tier 1 is generic drugs, which have the lowest possible copayment.  Tier 2 includes brand-name drugs that do not have a generic option.  Tier 3 consists of nonpreferred, brand-name drugs that do have a generic option. Tier 4 includes nonpreferred brand-name drugs and some nonpreferred, high-cost generic drugs.  With Part D coverage, the copayment costs can range from just a few dollars to fairly hefty sums. 

In addition, there are preferred pharmacies.  A preferred pharmacy network is a group of pharmacies willing to give the plans a larger discount than those offered by other pharmacies.

That leads us to the next issue: the stages of coverage.

Stage 1 of Part D is when you pay the full cost of prescriptions until you meet the annual deductible, which may be as little as zero or much higher, depending on the plan selected. 

Stage 2 of Part D is when the plan pays for a portion of the prescription drug you purchase, as long as the drug is covered under the plan’s formulary.  The copay is determined by the tier level assigned to the drug.  This stage ends when the amount spent by you and your plan adds up to the coverage limit set by Medicare for that year.  The limit for 2022 is $4,430.

Stage 3 of Part D is known as the coverage gap (a.k.a., the donut hole) for those whose spending on prescription drugs has exceeded the Stage 2 limit.  When in Stage 3, participants will pay 25% of the plan’s cost for covered brand-name and generic drugs.  Stage 3 ends when the total spending for covered drugs reaches $7,050.  This number is the total of copays, yearly deductible, and what has been paid for drugs in the coverage gap.

Stage 4 of Part D is known as catastrophic coverage.  In this stage, the plan and the government pay for about 95% of the cost.  Participants in Stage 4 remain in this stage until the end of the coverage year. 

For more details, go to medicare.gov.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

203-222-9370

www.soundasset.com

www.soundasset.blogspot.com

Any questions?  Please contact me at nrwayne@soundasset.com

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