There are almost 1,000 Medicare prescription drug plans offered nationwide – a number that has increased steadily over the past 18 years. Coverage is administered by private insurance companies with a Medicare contract.
Although monthly premiums, co-pays, co-insurance, deductibles, drug lists (formularies) and pharmacy networks vary by plan, Medicare has established a standard prescription drug benefit design used by many Part D plans.
There are four components of the standard benefit design in 2021:
Standard deductible: $445
Initial coverage limit: $4,130
Out of pocket spending threshold: $6,550
Once you meet the initial coverage limit, you pay 25% for brand name and generic drugs up until you’ve paid the $6,550 spending threshold, after which you enter the Catastrophic Coverage phase.
In this phase, you pay no more than $9.20 per prescription.
Medicare drug plans must cover every drug in six classes, including immunosuppressants (for autoimmune conditions like Lupus) and antidepressants (for mental health conditions like depression and anxiety).
Medicare recipients with the Part D Low Income Subsidy will always have different coverage than the standard benefit design because they’re getting extra help paying for their medicine.
Many Medicare drug plans have coverage that’s better than the standard benefit design. Generally speaking, the richer your drug benefits the higher the monthly premium you will pay.
Medicare Advantage (Part C) plans usually bundle hospital and medical benefits together with Part D drug coverage. In these cases, the coverage must be at least as good as the standard Medicare Part D benefit design.
If you are subject to the Part D late enrollment penalty, that amount will be automatically added to your prescription drug premium, even if you are enrolled in a $0 premium Medicare Advantage plan with drug benefits.
Your insurance company does not keep the extra money you pay. They send your penalty to the Medicare program on your behalf every month.