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The ABCs of Part D: How Medicare Prescription Drug Plans Work

Medicare Part D provides important coverage for your prescription drugs. If you are eligible for Medicare and already have Part A and/or Part B coverage, you can take advantage of a Medicare Prescription Drug Plan (Part D).

Part D plans are offered by private insurance companies approved by Medicare. Because these plans vary in terms of cost and drugs covered, it’s important you do your homework before choosing one.

Here are a few things to keep in mind while shopping for a Medicare Prescription Drug Plan:

Part D is optional coverage. Prescription drug coverage is not automatically included when you enroll in Medicare.

There is an initial enrollment deadline. You can sign up for a Part D plan during the seven-month period that begins three months before your 65th birthday month and ends three months after.

There is a late-enrollment penalty. If you enroll in a Part D plan after the initial enrollment period, you may have to pay more for your plan for the rest of your life.

There is also an annual open enrollment period. From October 15th through December 7th each year, you can enroll in a Part D plan, disenroll from a plan, or switch plans.

Part D plans do not cover all prescription drugs. Check each plan’s formulary (list of covered drugs) to be sure the prescription drugs you take are covered.

How Part D Coverage Works

To get the most from a Medicare Prescription Drug Plan, it’s important you understand the four phases of this coverage.

Phase 1 is when you pay your deductible (if your plan has one). Once your deductible is met, you move to…

Phase 2, in which you have a copay or coinsurance every time you fill a prescription and your plan covers the rest. If the amount you and the plan pays reaches $3,700, you move to…

Phase 3, also known as the “Donut Hole.” During this phase, you pay up to 51% of the cost for generic drugs and up to 40% of the cost for brand name drugs. If your out-of-pocket costs reach $4,950, you move to…

Phase 4, the Catastrophic Coverage phase, in which you pay the greater of $3.30 or 5% of the cost for generic drugs, and $8.25 or 5% of the cost for all other drugs.

When the year ends, you move back to Phase 1 and begin again. Note that all of the dollar amounts mentioned above are for 2017 and set by the Centers for Medicare and Medicaid Services (CMS), and can change annually.

Medicare has a lot of moving parts, each with it’s own rules and timeframes. Part D is no exception. If you have additional questions about Medicare Prescription Drug Plans, visit Medicare.gov, the official U.S. government site for Medicare.