Before Medicare, you probably had coverage through an employer group health plan. During the annual enrollment period, there were two or three options available. You wanted the plan to cover your prescription medications but, beyond that, drug coverage was likely not a big factor in your decision. That all changed once you entered the world of Medicare.
Shopping for Part D prescription drug coverage can be challenging. You have so many options. There are, on average, 23 stand-alone Part D plans available. Those who elected Medicare Advantage get to pick from 31 plans that include drug coverage, with some areas having 50 or more choices.
In your quest to keep things simple, you might select the one with the lowest premium. If you do that, you could end up paying more. For many Medicare beneficiaries, a higher monthly premium can save money over the course of a year.
That may sound counter-intuitive but it’s the reality. There are three factors that can make a big difference in total costs.
- The cost per drug tier: Most drug plans have five tiers. Tier 1 includes the cheapest generic drugs. Prices increase with each tier with Tier 5, specialty drugs, being the most expensive. Every plan determines the drugs in each tier and how much you’ll pay. Most Tier 1 and Tier 2 medications come with copayments, a flat dollar amount like $1 or $10. Plans generally charge a coinsurance, a percentage of the costs, for drugs in Tier 4 and Tier 5. Depending on the plan, Tier 3 can be either a copayment or coinsurance.
- The retail cost and copayments or coinsurance: What you pay can depend on the retail price of a drug and the plan’s cost sharing. For example, in Wisconsin, a Tier 3 drug in one plan has a $47 copayment; a second plan charges 17%. If the retail cost of a drug is $100, a person would pay either $47 or $17. However, if the retail cost is $350, the cost sharing is $47 in the first plan and $59.50 in the second. And, with a coinsurance, if the retail price of a drug goes up, what you pay will also increase.
- Medications subject to the Part D deductible: The same low-premium plan (in point 1) applies the deductible to Tier 2 medications. That means the drug plan member can pay up to the the first $480 this year, instead of a flat copayment in plans with higher premiums that do not apply the deductible to Tier 2 drugs.
No one really wants to spend time comparing the nuts and bolts of dozens of drug plans. That’s why the simplest approach is choosing the plan with the lowest premium. That may be simple, but you probably won’t be happy with the results.
Instead, take a few minutes to check out one feature in the Medicare Plan Finder. After entering your drugs and pharmacies, on the page that lists all plans, you’ll find a link with each plan labeled, “Estimated total drug + premium cost.” For more information about what this means, click on the link, and you’ll read:
“Only includes the estimated costs to fill the drugs you entered at the pharmacies you chose plus your premiums for the months left in this year. Doesn’t include any estimated health costs.”
In other words, if you are looking for a drug plan next month (in August), the Plan Finder will predict how much you’ll pay in premiums and cost sharing (your out-of-pocket costs when refilling a prescription) for the rest of the year, beginning in September. You may find that the lowest premium does not always lead to the lowest costs for you. Consider this example.
Joanne takes only one medication. She thought that the plan with the lowest premium available to her, $6.90, would be her best option. However, then she looked more closely. The plan’s copayment for her drug, a Tier 2, was $19. The total cost for the year (the monthly premium plus copayments) would be $310.80.
She looked at a second plan with a premium of $9.80 and a copayment of $10 for her drug. However, her drug, also a Tier 2 in this plan, was subject to the deductible. She would pay the retail cost for the drug until meeting the deductible in October. Her total drug costs would be $605.60.
Finally, Joanne found a plan with a $14.60 premium. In this plan, her drug was a Tier 1 with a $4 copayment. Her annual costs would be $223.20. Paying more in premiums saved her money.
Don’t get the wrong idea. Plans with very low premiums are a wonderful addition to Part D drug coverage. Just a few years ago, the lowest premiums were pushing $20. Those who took no medications really questioned the need for Medicare drug coverage.
Today, premiums start around $7. If you take no drugs or one or two cheap generics, those plans will work just fine. However, if you take more costly medications, the low premium plans may not be the answer.
Time and again, I have found that paying more up-front in premiums can save money over the course of a year. Higher-premium plans tend to treat expensive drugs better. Investigating your options may be worth it. And remember, check out all the changes in drug coverage during the Open Enrollment Period.