What Is Medicare Part D Prescription Drug Program? - dummies

What Is Medicare Part D Prescription Drug Program?

By Ryan P. Zacharczyk, CFP®, MBA CRPC

Medicare Part D is a relatively new prescription drug program. Part D allows seniors to have some form of insurance coverage that will enable them to get their prescription drugs at an affordable rate. Part D is handled by a private insurance company that is approved by Medicare. There are two ways to receive Part D benefits:

  • Medicare Prescription Drug Plans. These plans (sometimes called “PDPs”) add drug coverage to Original Medicare, some Medicare Cost Plans, some Medicare Private Fee-for-Service (PFFS) Plans, and Medicare Medical Savings Account (MSA) Plans.

  • Medicare Advantage Plans (like an HMO or PPO) are other Medicare health plans that offer Medicare prescription drug coverage. You get all of your Part A and Part B coverage, and prescription drug coverage (Part D), through these plans. Medicare Advantage Plans with prescription drug coverage are sometimes called “MA-PDs.” This is also often known as Part C.

Because Part D is run through private insurance companies, you’ll find various options and levels of coverage, depending on the company you choose. However, the government requires certain minimums that you can expect. Here is roughly what you can expect your deductibles, co-pays, and premiums to be for 2011:

  • Premium: In most cases, your Part D premium will be $30 per month.

  • Initial Deductible: The out of pocket prescription drug expenses is $310 before your drug plan pays a dime.

  • Initial Coverage Phase: Once the $310 deductible has been reached, Part D picks up the tab on 75% of the prescription drugs for seniors until their total costs for the year reach $2,840.

  • Donut Hole: Once the total drug costs for the year reach $2,840, there is a period of essentially non-coverage known as the donut hole. This requires the beneficiary to pay 100% of the drug expenses up to a total of $4,550. New for 2011: an added 50% discount on certain brand name prescription medications for those who fall within this benefit gap.

  • Catastrophic Coverage: If your annual prescription drug costs exceed $4,550, Part D will pick up the remaining drug costs with only a small co-pay.

Obviously, Medicare Part D is a complicated program that can still leave a beneficiary with a rather large outlay of costs. Those relying on Part D during retirement would be wise to explore a Medigap policy to plug the holes in the Part D program.