Cut Your Prescription Medicine Out-of-Pocket Costs

Prescription drugs are the largest medical expense of most retirees, and their cost usually increases faster than inflation. Yet, many seniors know little about how to reduce their out-of-pocket medicine costs, and important changes are coming to Medicare in 2020.

Original Medicare doesn’t cover most prescription drugs. You must take out a Part D Prescription Drug insurance policy to have coverage for medicines (unless you are enrolled in a Medicare Advantage plan). You want to enroll in a Part D plan when you first become eligible for Medicare. If you don’t take out a Part D policy within the first six months of being eligible for Medicare, if you eventually take out a Part D policy, you’ll pay a higher premium every month for the rest of your life. The amount of the premium penalty will depend on how long you waited to sign up for Part D.

Part D policies are issued by private insurers but regulated by Medicare. You’ll pay a monthly premium to the insurer. Each policy has its own deductibles, copayments and other terms.

The most confusing aspect of Part D is the coverage gap, also known as the do-nut hole or doughnut hole. The gap has changed over the years and will change again in 2020. Most seniors don’t understand the coverage gap, according to a survey by Blink Health. Initially, your covered prescription drugs cost you only the policy’s co-payments. Once you meet the policy’s deductible (if it has one; the deductible can’t exceed $415 in 2019), you pay a higher percentage of the drug costs until your out-of-pocket spending reaches the annual limit.

For 2019, the out-of-pocket limit is $5,100. The 2020 limit will be announced later this year. You’re in the coverage gap, or the donut hole, when your spending for the year is between the deductible limit and the annual spending limit.

In the coverage gap in 2019, you pay 25% of the cost of all brand-name drugs and 37% of the cost of all generic drugs. In 2020, you’ll pay 25% of the cost of both types of drugs when you’re in the cover-age gap.

Once your out-of-pocket medicine spending exceeds the year’s limit, you receive what Medicare calls catastrophic coverage. You’ll pay only a small coinsurance or copayment for covered medicines for the rest of the year. The next year, you start over.

It is tempting to select the Part D plan with the lowest premium, but that might not leave you with the lowest out-of-pocket costs at the end of the year. You want to look at the deductible, copayments and whether the policy provides additional benefits while you’re in the coverage gap.

Most importantly, especially if you’re already taking medications, you want to examine the plan’s formulary and where drugs are listed in its tier system.

The formulary is the list of medicines covered by the plan. All prescription medicines aren’t covered, even when using a prescription drug policy. Each policy has its own list of covered medicines. Most conditions and diseases have more than one drug available to treat it. A policy might cover only one name brand or require you to try that brand and will cover an alternative only if the first drug doesn’t work for you or has side effects. This is known as step therapy.

Policies also generally cover only a generic drug if both a generic and brand name drug are available. There can be other nuances. If you already are taking specific drugs, or because of your health history anticipate needing certain drugs in the future, see how they are treated under different policies before making a choice. Most policies also have a tier system, usually consisting of three tiers.

Generally, drugs listed in tier 1 have the broadest coverage. Usually these are widely used generic and brand-name drugs. Many policies will cover all or most of the cost of Tier 1 drugs. You are likely to pay higher percentages of the cost or higher copayments for medicines listed in tiers 2 and 3. These tiers also are likely to contain drugs that the insurer will pay for only after you’ve tried tier 1 medicines. The details of the tier system vary from policy to policy.

Of course, a policy doesn’t have to cover all drugs. You don’t want to buy a policy that provides no coverage for a drug you’re already taking.

The formularies also list the price of each drug to members. Here again, there can be vast differences between plans. The Senior League did a price comparison in Part D plans of 10 of the most frequently prescribed brand name drugs. It found vast price differences between plans for the same drugs. Browse a policy for special conditions. For example, you might need advance approval before a policy covers certain drugs. There also might be quantity limits, or a minimum amount of time might have to pass before a prescription can be refilled.

Once you have a policy, stay alert for changes in the formulary and tiers. It is not unusual for a policy to make changes from year to year for the same policy or even to make changes during the year.

During Open Enrollment from Oct. 15 – Dec. 7 each year, you can switch from one Part D plan to another.

Three firms cover about 60% of all Part D enrollees in 2019, according to the Kaiser Family Foundation: UnitedHealth, Humana and CVS Health. Each can have multiple policies. Kaiser also found that the average monthly premium for Part D policies in 2019 is $40, a 4% decrease from 2018. Premiums have had multi-year periods of rising, flat and falling prices since Part D began in 2006. As with other insurance policies, it is very important to shop around. Studies have found that Part D premiums can vary by as much as 100% for identically or nearly identical coverage.

Even after selecting a Part D plan, you can do more to reduce out-of-pocket costs. The cost of the same medicine varies between pharmacies. A Part D plan might require you to use a particular pharmacy or choose from a select group to receive maximum benefits. To the extent you have a choice of pharmacies, call to check prices on your medication. You’re likely to find a range of prices, except for the most widely used generic drugs.

Don’t assume you’ll save money by using generic drugs. Because of how Medicare is structured, it’s often cheaper to use a brand-name drug instead of a generic when you use what’s classified as a specialty drug, according to a study by Health Affairs. Specialty drugs generally are high-priced drugs that treat rare or complex conditions. Again, the lesson is to shop around and compare. The National Council on Aging has some tools on its website, including an online questionnaire to help compare plans. It also offers free detailed information from licensed benefits advisers.

As with other Medicare-related policies, you can find the choices available to you on the Medicare website by calling 800-MEDICARE, or by working with an insurance agent or financial planner who specializes in Medicare-related problems.

There also are counselors in each state available through the State Health Insurance Program and your local Area Agency on Aging. You can locate the counselors through www.shiptacenter.org.