Prepare for changes in prescription drug coverage!
As we go through life, our medical costs can increase. There are prescriptions and over-the-counter medications you are taking now, and there will probably be new medications added as you get older. Together, that list can get expensive enough to put a damper on your “fun” spending.
The good news is that Medicare helps you cover a portion of the cost. The bad news? The portion NOT covered by Medicare can be significant. The other good news? For some Medicare beneficiaries, things are about to get better!
The way things were
To help us understand the impact of the upcoming changes, we’ll take a peek at how the Medicare drug coverage has evolved over the years.
Prior to 2006, Medicare prescription drug coverage did not exist.
In 2006, Medicare Part D came in to help retirees cover the high costs of medications. The unfortunate side effect was that the fix had a hole in it – specifically, the “donut hole”. To keep system costs manageable, legislators wanted to encourage Medicare Part D participants to request generic drugs. To accomplish that, they allowed for greater coverage on generic medications and less coverage on brand-name medications.
This attempt to keep costs down resulted in the dreaded “donut hole”. Donut hole victims incurred impossibly high prescription costs for those drugs that were expensive – but not expensive enough to fall into the “catastrophic” bucket. Medicare didn’t cover the cost of those drugs, leaving retirees scrambling to get to the other side of the donut hole.
This approach may have saved the Medicare system some money, but it came with several negative side-effects for beneficiaries. At any point in time, some drugs are just too new to have a generic equivalent. Others have a generic version, but it doesn’t work as well as the original drug. As a result, some participants had the pay the higher cost of the brand-name drug out of their own pockets. Others were forced to choose between a drug that worked exceptionally well but was extremely expensive – and one that didn’t work as well but was more affordable. Some people would skip taking the drug altogether in an effort to control their expenses. At times, this would lead to complications, additional hospitalizations, and higher costs in the long run.
What did it look like by the numbers? Here is a roadmap of co-payments for someone using Medicare Part D in 2018.
- Step 1: Pay the annual deductible ($415).
- Step 2: Pay 25% paid on all prescription meds (generic and brand-name) up to an annual $3,750 (called a coverage gap).
- Step 3: Beyond $3,750, pay 44% on generic drugs (which isn’t a big problem because they tend to be more affordable) and 35% on brand-name meds (which can add up to hundreds of dollars per prescription).
- Step 4: During the year, after you have spent $5,000 on prescriptions, co-pays could be the greater of $3.35 for a generic drug and $8.35 for a brand name drug, or 5% of either drug’s cost, for the rest of the year.
What is different in 2019
There are a few changes.
- Steps 1 and 2 above remain the same.
- Step 3: Pay 25% for brand name drugs and 37% for generics. This is a big deal, because the coverage gap donut hole is completely eliminated for brand name drugs (i.e. you pay the same 25% from the time you reach your annual deductible in Step 1 to your “catastrophic” maximum in step 4).
- Step 4: After your reach $5,100 in prescription expenses, co-pays can be the greater of 5% or $8.50 for brand name and $3.40 for generics. This step wasn’t materially changed by the new rules.
How will this affect you?
The answer is, it depends on your situation.
The good news for all Medicare Part D beneficiaries is that the coverage inside the donut hole will result in lower payments per brand name prescription on your way to the “catastrophic” maximum point.
The bad news? For certain drugs, overall payments during the year can still get quite expensive. The cost of some medications (such as chemotherapy for treating cancer) can reach ten thousand dollars per month. This means that you will be paying 5% of that (and not the low $8.50 per prescription for a brand name drug) for the rest of the year. Retirees who find themselves in this situation need to plan for other coverage such as Medicare Supplement Insurance (Medigap) or consider Medicare Advantage and look at prescription drug coverage within those specific plans.
We have hit just the highlights here. Medicare is a complex system and Medicare Part D is no exception. Each policy is unique. The varying details can mean cost savings or additional costs to you. Choosing your Part D coverage is not a one-and-done project. Every year you should review and critique your policy coverage. If you need help finding your way through the maze of terms and conditions, each year work with an impartial specialist who can help you navigate the system to get the coverage that works the best for your current situation.
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