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Once you learn Medicare’s ABCs, you’ll spend a lot less

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Did you know that for over 40 years Medicare had no retail outpatient drug coverage? That’s right, except for medications administered in a clinical setting, millions of people on Medicare paid out of pocket for medications for years.

Fortunately, this changed forever with the advent of Part D in 2006. Medicare Part D is a voluntary program which beneficiaries can participate in to get help paying for retail, outpatient medications.

Let’s look at coverage for prescription medications under Medicare, so you have a better idea of how much you will pay for drugs on Medicare.

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The Parts of Medicare

How Medicare covers your medications depends on where and how the medications are administered. Medicare Part A is your hospital coverage and Part B is your outpatient coverage, while Part D covers outpatient medications.

If you have been admitted to the hospital, then drugs provided to you during your covered stay will typically fall under Medicare Part A’s hospital coverage. Patients will often pay nothing for these medications after they have met Medicare’s Part A deductible for their hospital stay. The deductible is $1,364 in 2019 and most people will reach this if they spend even one night in the hospital. There are no other charges for Part A services unless you have a long hospital stay of 60 days or more.

Other than medications delivered under Part A for these inpatient stays, most medications will fall under Parts B or D when you are on Medicare.

Medicare Part B Drugs

As your outpatient medical coverage, Part B covers things like doctor visits, lab testing, diagnostic imaging, emergency care, physical therapy, durable medical equipment and more.  It also covers any medications that you do not administer to yourself. Instead, Part B drugs are generally administered in a clinical or hospital setting. Typically, these are injectable or infusion medications.

Chemotherapy is an example of a Part B drug when it is delivered via infusion at an oncology clinic or office. Vaccines are another example; Medicare Part B covers most vaccines including flu shots, pneumococcal shots, and hepatitis shots as well as occasional vaccines that are administered for treatment of an illness or injury, like tetanus.

Some people with serious health conditions autoimmune diseases also have injectable drugs administered by their doctors and these will fall under Part B. For instance, women who meet the coverage criteria for osteoporosis may be prescribed an injectable osteoporosis medication. Immunosuppressive medications are another common example.

Medicare Part B covers 80% of the cost of these medically necessary medications after you have first met your annual Part B deductible, which is $185 in 2019. You are responsible for the other 20%, which is called your coinsurance.

If you have enrolled in a Medicare supplement, then that coinsurance is likely covered by the supplement for you, depending on which plan you chose. Popular Medicare supplements like Plan F and Plan G cover this 20% coinsurance.

Medicare Part D Drugs

When you pick up medication at your local pharmacy and administer that medication yourself, then these drugs will generally fall under Part D. Since Part D is voluntary, you must enroll in a plan either during your initial enrollment period for Medicare or during another valid election period, such as the fall Annual Enrollment Period which runs from October 15 to December 7.

To enroll in Part D, you will choose one of the Part D plans offered by an insurance company in your state. While all plans must meet certain federal guidelines, the insurance company offering the plan sets the monthly premium and develops a list of medications that will be covered by the plan. This is called a formulary.

Part D plans may have a deductible of up to $415 in 2019. Once the plan’s deductible has been met, you will enter the plan’s initial coverage phase. During this phase, you will pay a copay or coinsurance for each medication, depending on the tier that the drug falls in. Copays for preferred generic drugs will typically be lower than for non-preferred generics or brand-name medications.

There is also a phase of each drug plan called the coverage gap during which you pay more for your medications if your drug usage goes beyond a certain limit. In 2019, beneficiaries pay up to 25% of the cost of their brand-name drugs in the coverage gap and up to 37% of generic drugs.

It’s important while you’re enrolling in a plan that you check the plan’s formulary carefully to make sure your needed medications are covered. Medicare’s website has a Plan Finder Tool that can help you easily search for plans in your area that cover most or all of your important medications.

All Part D drug plans have a catastrophic coverage limit to protect you as well. If your annual drug spending goes over this limit for the year, then the plan must cover 95% of the cost of your covered medications for the rest of that calendar year.

Medications Not Covered by Medicare

Some medications fall outside of Medicare coverage altogether. You will likely pay out of pocket for medications that are designed for weight loss or used for cosmetic purposes. Medicare also does not cover fertility medications, prescription vitamins and minerals, and erectile dysfunction medications unless these drugs are being prescribed for a purpose other than sexual dysfunction.

With that being said, there is no doubt that Medicare Parts A, B and D help to cover a great deal of the drug expenses that beneficiaries commonly face. While Medicare doesn’t cover 100% of the cost of these medications, it certainly covers far more than it did before Part D came into being. It’s important to enroll in coverage when you first become eligible so that you are covered for future medication needs and so that you also avoid the late penalty for not enrolling.

While technically Part D is voluntary, if you do not have other creditable drug coverage and you fail to enroll in Part D when first eligible, you will be assessed a penalty of 1% for every month that you don’t enroll. The penalty is cumulative and can add up to quite a bit over time.

Enrolling in coverage upfront will help you to avoid this and to be well covered when needs for medication arise in the future.

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About the Author

Danielle Roberts

Danielle Roberts

Danielle Roberts is a Forbes Finance Council member and co-founder of Boomer Benefits, a licensed insurance agency that helps baby boomers navigate Medicare in 48 states. She has been featured in, quoted by, or been an expert resource for numerous publications, including CNBC, Business Insider, MarketWatch, NBC News, Rockstar Finance, and the Silicon Valley Business Journal. She has also appeared as a personal finance guest on top money podcasts such as the Stacking Benjamins, the Money Millhouse and Big Picture Retirement. Danielle is a past president of the Fort Worth chapter of the National Association of Health Underwriters and served two years on the state board as their magazine editor. As a Medicare Supplement Accredited Advisor, she teaches thousands of baby boomers how to navigate Medicare each and every year.

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