Medicare Prescription Drug Coverage: How to Compare Plans and Save
Key takeaways:
Medicare prescription drug coverage plans cover prescription medications that are picked up from the pharmacy.
You can add prescription drug coverage to your eligible Medicare plan or special plans such as Medicare Cost Plans, Medicare Private Fee-for-Service Plans, and Medicare Medical Savings Account Plans.
Always compare all options, including other eligible insurance plans, to ensure you need a Medicare drug plan.
To be sure, understanding how Medicare’s prescription medication plans work can take some time. But selecting the right plan can pay off down the road.
We’ll help you get started with a basic overview of how these plans work, including the factors that can affect how much you pay. When you’re ready to enroll, check out our post on how to sign up for a prescription medication plan.
Do I need a Medicare drug plan?
Before you look at a Medicare prescription medication plan, take stock of any healthcare insurance you already have or are eligible for because it could affect your decision to get Medicare drug coverage.
Prescription Savings Are Just the Beginning
See what other benefits you qualify for—from cashback cards to cheaper insurance.
Some types of insurance offer very similar prescription medication coverage to Medicare and may be worth keeping instead of enrolling in a Medicare drug plan right away. Examples include:
Federal Employee Health Benefits (FEHB) programs
Veterans’ Benefits
TRICARE
Indian Health Services
These types of insurance plans are considered “creditable.” You can keep them and avoid paying a penalty if you decide to sign up for a Medicare drug plan in the future. Medicare may charge you a penalty on your monthly premium if you don’t enroll when you’re first eligible.
Some employer- and union-provided health plans may also be considered creditable. Check with the contact person for your plan.
How is Medicare coverage organized?
If you decide that you do need Medicare drug coverage, it helps to understand how the prescription drug part of Medicare fits into the larger program.
Medicare is a federal health insurance program for people 65 years old or older, younger people with specific disabilities, and people with end-stage renal (kidney) disease.
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Medicare is made up of different parts that offer different types of coverage:
Part A covers inpatient hospital stays, care you receive in a skilled nursing facility, hospice care, and some home healthcare.
Part B covers some doctors’ services, outpatient care, medical supplies, and preventive services, such as screenings and vaccines.
Part C is Medicare Advantage, which is a bundled plan that includes Part A, Part B, and can include Part D. These plans are offered through private health insurance companies such as HMOs and PPOs.
Part D is prescription medication coverage that’s added onto other Medicare plans. You can review a detailed breakdown here of all your coverage options to decide which plan is right for you.
How do I get coverage?
There are two ways to get prescription drug coverage through Medicare:
You can add prescription drug coverage to original Medicare (Parts A, B, or both) or to special plans such as Medicare Cost Plans, Medicare Private Fee-for-Service Plans, and Medicare Medical Savings Account Plans. If you go this route, you are covered under Part D, also known as a prescription drug plan or PDP.
You can get it through a Medicare Advantage Plan or another Medicare plan that offers prescription drug coverage (also known as an MA-PD). If you already have a Medicare Advantage Plan but don’t have prescription drug coverage, you can switch to a plan that does during open enrollment.
What will my plan cover?
Your Medicare prescription drug coverage plan will cover prescription medications that you pick up from the pharmacy. It won’t cover drugs that a doctor gives you during an inpatient hospital stay or in an outpatient hospital setting (these are covered by Parts A and B, respectively, and can include chemotherapy or dialysis).
It also won’t cover over-the-counter medications, such as ibuprofen or Sudafed. But it will cover certain medications that you inject, such as insulin.
How much will it cost?
The amount you’ll pay for a Medicare prescription drug plan and your medications will depend on a number of factors, such as:
The cost-sharing and premiums involved with your plan
How well your medications are covered
The pharmacy you use
Whether you reach the coverage gap or “donut hole”
Whether you enroll in Medicare’s Extra Help program
Let’s look at each of these in turn.
Cost-sharing and premiums
Most plans will require you to pay for a share of your prescription medication costs (known as cost-sharing). Forms of cost-sharing include deductibles, coinsurance, and copays. You will probably also have to pay premiums. These costs will vary by plan.
A deductible is the amount you pay for your prescription medications before your insurance begins to pay (not all plans have deductibles).
Coinsurance is a percentage of prescription medication costs you pay after you’ve met your deductible.
A copay is a fixed amount that you pay for medications after you’ve met your deductible.
A premium is the amount you pay for prescription medication insurance every month.
When choosing a prescription medication plan, think about how much you can afford to pay out of pocket for each prescription—but also consider the overall costs and coverage. Sometimes, a plan may have higher premiums or deductibles but provide good coverage once you meet the deductible.
A table on the Medicare website lists estimated monthly Part D premiums by income. If your income falls above a certain amount, you pay a monthly adjustment in addition to your premium.
Covered medications
As you review plans, make sure any plan you consider includes the medications you take in its formulary. A formulary is a list of medications that a Medicare drug plan will cover. If the formulary doesn’t include your medication, ask your doctor if a similar medication is on the list or if they can help you get an exception for coverage.
Plans also place medications into tiers. Generally, the higher the tier, the more you have to pay for the medication. Check to see where your medications fall. A rule of thumb is that you are more likely to pay less and get better coverage for a generic medication as opposed to a brand-name one.
Lastly, you’ll want to see if your plan places restrictions on coverage for your medications, such as prior authorizations, step therapy, or quantity limits. These restrictions don’t necessarily mean you can’t get coverage for the drug. But it may make the process of obtaining coverage more difficult.
Pharmacy networks
Medicare prescription drug plans contract with pharmacies, which are part of the plan’s network. If you use an in-network pharmacy, your costs may be lower than if you use a pharmacy outside of the plan’s network. A plan’s pharmacy network can include retail pharmacies or mail-order programs.
Coverage gap
In many plans, you will reach a coverage gap or “donut hole” once your medication costs for the year—including what you and your plan have paid—reach a certain amount. In 2021, that amount is $4,130.
At this point, you pay a higher percentage of your medication costs—no more than 25% for brand-name and generic medications. When your out-of-pocket costs reach $6,500, Medicare’s catastrophic coverage kicks in, and you pay no more than 5% of your medication costs.
People who reach the coverage gap typically use several high-cost, brand-name medications. If you think you might be at risk of reaching the coverage gap, you can search for plans that include coverage in the gap, though these plans may charge higher premiums.
Extra Help
Another thing to consider is whether you qualify for Medicare’s Extra Help program. If you meet the program’s eligibility and income requirements, Medicare will help cover your medication costs, premiums, deductibles, and coinsurance.
The bottom line
Before applying for Medicare, make sure to research the various options. Other creditable healthcare insurance options may be a better fit depending on your needs. For information on how to enroll in Medicare prescription drug coverage, check out our blog post here.
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