- June 10, 2020
Today’s topic is unexpected Medicare Part D costs. None of us like surprise costs, but far too often, people experience them on Medicare Part D. We’re going to explain why unexpected costs happen, then show you how to avoid them. Let’s get started.
Medicare Has Four Parts
Before we jump into our topic of unexpected Medicare Part D costs, let’s briefly review how Medicare works. Medicare is broken up into four parts A, B, C, and D. Medicare A and B are called original Medicare, with A representing everything related to inpatient care and B representing outpatient services. Some people decide not to stay in original Medicare, so they get a C plan. These are called replacement or Advantage plans. Part D plans are prescription drug plans.
If you get a C plan, the drug plan will be included in it, so you won’t need to purchase a separate Part D plan. However, if you stay on original Medicare, you will have to purchase a separate Part D plan.
Whether it’s embedded in your Part C plan or you purchased it separately, you can have unexpected Part D (drug plan) costs. Let’s look at how you can avoid those extra costs.
Why Unexpected Medicare Part D Costs Occur
There are five main reasons why you might encounter unexpected Part D costs. We’ll briefly look at each of these reasons, then show you how to avoid them.
Not All Medications Are Covered by Medicare
The first reason why people have unexpected Part D costs is that not all medications are covered by Medicare. While Medicare covers about 95 percent of all medications on the market, that still leaves five percent of medications not covered by Medicare.
If you end up with an unexpected Part D cost, it could be simply that Medicare doesn’t cover your medication. The good news is, if Medicare doesn’t cover a specific med, you can usually find an alternative equivalent medication that is covered by Medicare.
Not All Medications Are In Your Plan’s Formulary
The second reason you might end up with an unexpected Part D cost is that not all medications are in your plan’s formulary. In most markets today, there are somewhere between 20 to 30 different drug plans available. Each of these drug plans has a different formulary (a list of prescription drugs covered by your health plan). Some formularies may only cover 3,000 different medications while others will cover around 7,000 meds.
Many times people only look at the monthly premium amounts when deciding which Part D plan to go with. The truth is, the premium is not the most important thing to consider. If you get a plan with a small formulary that doesn’t cover your meds, you’ll end up paying 100 percent out of pocket for the meds not covered by the plan. This can add up very quickly. That’s why it’s important to do your own homework or work with an experienced broker who can help you find a Part D plan with not only a large formulary but also one that includes your specific medications.
Copay Cards are Usually Void on Medicare
Copay cards are issued by manufacturers of medications. Pharmaceutical companies typically issue copay cards for high-cost medications, making the medication much more affordable for you. For example, if you have a copay card, you may pay $5 for a $1,000 medication or $0 for a $250 medication.
Once you go on Medicare, however, these co-pay cards are almost always void. If you have a co-pay card for a high-cost medication, read the fine print to see if it will be accepted when you go on Medicare. Most likely it won’t be. Without the co-pay card, you may experience a surprising increase in prescription drug costs.
Out of Pocket Expenses (Copays) Can Change Throughout the Year
Most people going on Medicare are surprised by this, but Medicare Part D copayments can fluctuate throughout the year. If you've been on an individual health plan or a group health plan, you’ve never had any out-of-pocket cost changes during the year. Instead, you had fixed co-pays that lasted throughout the calendar year. When you go on a Medicare Part D plan, this can change.
Here’s why your Part D copays may change: Every part D plan (whether it's embedded within an Advantage plan or is a standalone drug plan), is going to have four different stages. Each of these four stages represents a different out-of-pocket cost you’ll have to pay.
Every Part D plan starts off in the deductible stage (this year, the deductible on most plans is $480). This simply means that when you pay your medication co-pays, the amount is applied to your deductible of $480.
Let’s say you’re in the deductible stage. You are on two medications, both with a $4 copay, meaning your medications cost you $8 a month in copays. If these are your only copay costs, then you’ll never reach your yearly deductible of $480, so you’ll stay in the first stage of your Part D plan all year long.
However, if you’re on brand name meds or take many medications, you may eventually reach your deductible. When this happens, you’ll go on to stage two of the Part D plan.
In stage two, you’ll pay co-pays for your medications based on tier levels one through five. The lower the tier, the lower your out-of-pocket copay will be. But what's different this time is that instead of just tracking your copay costs, Medicare is tracking the actual retail cost of your medications. So every time you pick up a med, even though you’re still just paying a fraction of the cost in co-pays, Medicare is adding up to the total retail costs. If the total retail cost of your meds reaches $4,020 (as of 2021), then you’ll move on to stage three which is called the donut hole stage.
In this stage, you’ll see a significant rise in medication costs. Why? In the donut hole stage, instead of paying copays based on a tier system, you’ll now have to pay 25 percent of the retail costs for your medication. So in stage one and two, you might have been paying a $45 copay, now in stage three, you could be paying a $125 copay for the same medication. This is a shocker for many people.
The fourth and final stage of Part D plans is called catastrophic coverage. Despite its name, this is a great stage to reach. In the catastrophic stage, you only have to pay five percent of the retail cost for your medications, which is obviously much less than your out of pocket costs in the donut hole stage.
So here’s the takeaway: Every single part D drug plan has four different stages. In each stage, your copays will fluctuate, meaning your out of pocket costs could rise and fall throughout the year.
You Didn’t Read Your Annual Notice of Change
The fifth and final reason why you could experience unexpected Part D costs is that you didn't read your Annual Notice of Change. (This one actually happens to people all the time.)
What is the Annual Notice of Change? During the Medicare annual enrollment period (every year between October 15th and December 7th), drug plans have the right to make changes to your plan for the next year. They have to disclose to you what they're changing, so they mail you the Annual Notice of Change right before the open enrollment period. Many people don’t take the time to open up and read the Annual Notice of Change, so when they run into a new and unexpected cost, they’re unprepared.
Part D plans have the right to change anything they want (from premiums to the formulary), so this is why it’s important to read through your Part D plan’s Annual Notice of Change at the beginning of the open enrollment period. If you don’t like the changes and want to switch to a new drug plan, you can do so during this seven-week period.
There are five main reasons why you might experience unexpected Medicare Part D costs.
- Not all Medications are Covered by Medicare
- Not All Medications Are In Your Plan’s Formulary
- Copay Cards are Usually Void on Medicare
- Out of Pocket Expenses (Copays) Can Change Throughout the Year
- You Didn’t Read Your Annual Notice of Change
The best way to avoid these unexpected Medicare Part D costs is to work with someone that understands the Medicare Part D system. Not only will they be able to explain possible changes and added costs to your plan, but they’ll also make sure that you’re on a prescription drug plan that is best for your needs.
We understand how difficult making the right Medicare decisions can be. To take the next step, watch our full course here, or schedule a free one-on-one call with a certified Medicare School Guide who can answer your questions, compare plans options, and even help you enroll. Click here to get started.
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