Many people pay more attention to all the medical benefits, ancillary benefits (dental, vision and hearing), the over-the-counter allowance, and any other extra benefits offered over one of the most important parts of their plan — prescription drugs. I am here to tell you, unequivocally (nice $2 word), that is a big mistake.

If you are a relatively healthy person (that doesn’t mean you may not have high blood pressure, type-2 diabetes, cholesterol issues and acid reflux, which are common today) you may see a primary care provider twice a year (average cost, $0). If you have a couple of specialists, you may see them each twice a year (average cost, $20 copay X 4 = $80). But if you take medications, you take them every month, month in and month out. And contrary to popular belief, a $0 copay medication is not free, there is a cost paid by the insurance company that is attributed to your coverage. What does that mean for you? It all counts toward the infamous Donut Hole.

So, let’s take a look at Part D of Medicare. You need to understand it well. Also, you need to understand what to do if you are ever prescribed a specialty tier (tier five) medication.

The Four Stages of Part D

First, while Part D is regulated by CMS (the Centers for Medicare and Medicaid Services — only the government can use one M for two words; there’s a reason why we say in the military, “Good enough for government work,” but I digress) it is provided by private insurance carriers like Humana, UnitedHealthcare, Aetna and others. And they all have to abide by the four stages:

1. The Deductible Stage
2. The Coverage Stage
3. The Coverage Gap (the infamous DONUT HOLE, blood red for emphasis)
4. Catastrophic Coverage

Let’s take each one at a time.

Stage 1: The Deductible Stage

Each year CMS sets a deductible for Part D. For 2023 it is $505. It will increase to $545 for 2024, according to Thomson Reuters article on CMS’ 2024 announcements.  What does this mean for you? It means that until you’ve spent $505 ($545 in 2024) out of your own pocket, the plan pays nothing. However, most Part D plans either wave this deductible, providing day-one coverage, or apply it partially.

What I mean by “apply it partially,” is that they may choose to only enforce $200 or $300, or some may say, “NO deductible on tiers one and two (the generic tiers), and only $300 on tiers three through five,” for example. But, if you get your Part-D plan bundled with your Medicare Advantage plan, most waive the deductible completely.

Stage 2: The Coverage Stage

In the Coverage Stage, you will pay the copay that pertains to the tier the drug falls under, and your plan will pay whatever the difference is of the actual or negotiated cost of the prescription. For example, my mom used to take Symbicort, a popular inhaler for COPD (chronic obstructive pulmonary disorder) which was a tier 3 medication. Back then, her copay was $35; the drug cost $500. While in her mind only $35 was spent, in reality $500 was, because the plan had to cover the remainder of the cost.

In 2023, the coverage stage will only cover $4,660 worth of prescriptions (coverage will increase to $5,030 in 2024). What does this mean for you? It means that once $4,660 for 2023 has been spent by you AND the insurance company, you will fall into the Donut Hole, if this happens before the end of the year.

NOTE: There are ways for many to avoid the Donut Hole, and we will discuss that in detail in another article on the Extra Help program (formerly known as LIS for low-income subsidy), but we will touch on it cursively in this article.

Stage 3: The Coverage Gap (The Donut Hole)

Once in the Donut Hole, you are liable for all prescription costs, albeit at a reduced rate of 25% the cost of a drug, until you spend $2,740 for 2023, $2,970 for 2024. What this means for you is if a drug costs $100, you will pay $25. If it costs $500, you will pay $125, until you have spent $2,740 for 2023.

The magic number to hit is $7,400 for 2023. In other words, the original $4,660 already spent by you and the insurance plan during the Coverage Stage, plus the $2,740 you spent out-of-pocket during the Coverage Gap, equals $7,400, you will then exit the Donut Hole and enter the last stage, known as Catastrophic Coverage.

For 2024, the magic number will be $8,000. The original $5,030 plus $2,970 = $8,000. But there will be some other changes for 2024 that will make it a bit more reasonable. We will discuss those changes after Stage 4, below.

4: Catastrophic Coverage

You’re now in the final stage. Once you’ve made it to Catastrophic Coverage, you have access to Extra Help rates. Remember, the program I mentioned we would cover in another article? Therefore, depending on what kind of prescription you get, will determine what you will pay.

• If it’s a Generic prescription that falls into the third tier, you will only pay $4.15. Contrary to popular belief, not all generic drugs are in the first two tiers, where the copay is typically $0. Some specialty drugs may fall into tier 3 because they are too expensive or are controlled.
• If it’s a Brand Name drug, regardless of whether it falls in tiers 4 or 5 (where the copays can be as high as $47 for tier 4 and $110 for tier 5), you will only pay $10.35.
• If you get a Tier 5 (specialty drug) prescription, which is typically a 33% coinsurance, you will pay only a 5% coinsurance in 2023.

About Tier 5

Tier 5 drugs are very expensive drugs that can be as much as $2,000+ per month, which would make a 33% coinsurance $666. Keep in mind that your doctor most likely will not prescribe a tier 5 drug unless he or she has tried everything else available, and it didn’t work. This is known as step therapy.

If this ever happens to you, make sure to ask your doctor to request an exception. When they do this, the insurance company will verify that step therapy has been done and that there are no other options. If this is the case, 99% of the time they will grant the exception and you will pay nothing for that drug for the current year. Since Medicare Advantage plans are year-to-year, your doctor would need to request an exception again the following year.

Extra Help LIS (Low-Income Subsidy)

Social Security runs the Extra Help program, designed to help seniors with medication costs. Currently, there are several levels, depending on one’s income. In a nutshell, if you qualify, you get rock-bottom copays for your prescriptions and up to $5,300 provided to your insurance company to protect you from the Donut Hole. And the best part is that over 60-million people qualify and don’t know it! You can own a home, a car and have up to $9,000+ in assets if single, $14,000+ if married, and STILL qualify.

2024 Changes for Extra Help

Also, currently, there are multiple levels in the Extra Help program, with differing coverage and copays. In 2024, there will only be one program, and everyone will get the same copays, no 5% coinsurance for tier 5, and the same amount of $5,300 made available to avoid falling into the Donut Hole.

We will cover this in detail in a future article. However, if you wish to reach out to me to see if you qualify, please do. Simply go to the Contact Us page or call me at (727) 459-1887.

Conclusion

While there are other programs that can help in various situations (like SHIP “State health Insurance Assistance Program”, which not all states offer), this article is not the place to cover them all. However, you, having read Part A and Part B, and now this article, should understand how the core parts of Medicare work. And the following article on Medicare Supplements will show you how people on Original Medicare ensure they control cost, so a 20% coinsurance with no maximum-out-of-pocket limit doesn’t rob them of their retirement.

As we continue on this series, you will come to understand your options better and will be able to decide what is best for you. In the meantime, if you have any questions and can’t wait for the other articles, please feel free to contact us for a NO OBLIGATION FREE CONSULTATION, by clicking on CONTACT US. Also, download your FREE digital Medicare & You 2024 guidebook.

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