Medicare Part D: The World of Donut Holes

Over the last month or so, we've explored the complicated world of Medicare and programs from private insurance companies designed to cover its shortfalls. This week we finish up on our Medicare discussion with the newest addition to Medicare called Medicare Part D. The "D" in this case means drugs.

The original Medicare plan doesn't cover outpatient drugs. Since 1965 (the year Medicare launched), the number of prescription drugs (and the number of prescriptions written for them) has expanded exponentially, such that the pharmaceutical industry is now a multi-billion dollar enterprise. And the costs just keep skyrocketing. The growth in the cost of pharmaceuticals is startling when compared to the growth in prices for other goods. The average retail prescription price increased more than 3 times the rate of general inflation (CPI-all items) and more than twice the CPI for medical care from 1998 to 2000 (9.2% compared to 2.8% and 3.8%, respectively). And since older Americans represent only 12% of the population and use almost one-third of all prescription drugs, the need for a comprehensive drug plan for older Americans (the bulk of Medicare beneficiaries) was long overdue.

"Comprehensive" may be a bit optimistic when discussing Plan D. The plan that Medicare put into place is complicated and convoluted at best. The biggest problem is something called the "donut hole." The way it works is this: Medicare allows beneficiaries to purchase a Medicare Part D plan offered by a private insurance company. While the plans can vary in what drugs they cover, what you pay for them, and what pharmacies you can use, all plans must cover the same categories of drugs, but plans can choose what specific drugs are covered in each drug category. Because of this, it's important to find out if the drugs you are currently taking are covered by any plan you are considering. It's also important to make sure the pharmacies you want to use are covered. Some additional items to consider are:

• Does the plan require you to pay a deductible upfront before your drug costs are covered?
• Do you have a co-payment (a flat fee) or do you have to pay a percentage of the drug's cost?

Most Medicare drug plans have a coverage gap oftentimes called the "donut hole." This is the place between the point where the insurance company stops paying for your drugs, forcing you to pay 100% of the costs of your drugs, up to the catastrophic limit, where they pick up paying again. The donut hole costs can include the deductible you have paid as well as the co-payments and/or co-insurance amount paid, but not the premiums you pay every month. Even when you're in the donut hole and have to pay everything out of you're pocket up to the catastrophic amount, you still have to continue to pay your Part D premium. Every state has at least one plan that helps to pay for the drugs when you're in the donut hole; sometimes they only help pay for generics. You also may qualify for extra help in paying your drug costs, at which point all or most of your premiums may be covered and you wouldn't necessarily have a donut hole.

If you have a Medicare Advantage program (subject of last week's column), you may or may not have drug coverage included. If you don't, you can typically purchase a Medicare Part D program. If you are just coming on to Medicare, you have the option to purchase a Medicare Part D program. If you are an existing Medicare beneficiary, you can add or switch your Part D program every year from November 15th to December 31st.

For more information, be sure to visit the Medicare website which has a wealth of information, calculators and other assistance to help you make the right choice for your prescription drug needs.

Until next time, be healthy!