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Retirement Savings Tip: Stop Spending Too Much on Prescription Drugs!

Last update on: Nov 27 2020

In last week’s issue of Retirement Watch Weekly, I presented What You Need to Know About the Prescription Coverage Gap.

We’ll continue on that track this week, with the best ways to save money on your prescription drugs.

Prescription drugs are a major spending item for many retirees, and the cost of prescription drugs is expected to increase faster than other categories of spending, including medical expenses in general.

Older Americans tend to spend more on prescriptions, and the annual cost increases each year.

Though some of the spending is due to price increases and inflation, those are not the major reasons prescription spending increases.

People tend to take more prescription drugs as they age, because they develop more health conditions that now are treatable by medications.

Prescription drugs are the largest out-of-pocket medical expense for most Medicare beneficiaries who aren’t paying for long-term care, according to the Kaiser Family Foundation.

The foundation also found that in the five years ending in 2015, the share of Medicare enrollees spending more than $2,000 out of pocket on brand-name prescription drugs almost doubled.

Unfortunately, the reality is that too many people pay too much out-of-pocket for prescription medications.

How To Assess Your Prescription Drug Expenses:

For starters, wise use of a Medicare Part D prescription drug policy or Medicare Advantage plan can decrease your lifetime out-of-pocket prescription spending.

Medicare Part B does not cover most prescription drug costs.

For help in con-trolling prescription spending, you need a Part D prescription drug insurance policy or a Medicare Advantage plan.

Part D insurance policies are issued by private insurers, but they are regulated by the Centers for Medicare and Medicaid and are subsidized by taxpayers.

If you enroll in a Medicare Advantage plan, similar prescription drug coverage is part of your plan.

Shop for a Medicare Advantage plan the same way I describe below to shop for a Part D policy.

Pay more attention to the medicine coverage than to the bells and whistles (such as gym memberships) that are featured in marketing campaigns.

You should take out a Part D policy when you first are eligible, usually at age 65.

Otherwise, you’ll pay a higher premium each month for the rest of your life once you take out a policy.

The longer you wait to take out a policy, the higher the penalty.

You can change Part D policies during Medicare Open Enrollment each year from October 7 to December 15.

Some states require Part D insurers to accept every beneficiary who wants a policy, while others allow insurers to exclude or offer different terms to beneficiaries who are switching policies.

You’ll pay a monthly premium for a Part D policy that is in addition to regular Medicare Part B premiums.

But do not buy a policy because it has the lowest premium.

You want a policy that leaves you with the lowest out-of-pocket costs at the end of the year.

Other details of the policy are more important than premiums, such as copayments and deductibles and any discounts the insurer negotiates.

But the most important feature is known as the formulary.

The formulary is the list of medicines covered by the plan and how they are classified. Each policy has its own list of covered medicines.

Many 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 first.

It will cover an alternative only if the first drug does not 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 pharmaceutical are available.

There can be other nuances. If you already are taking specific drugs or have a health history that indicates you may need certain ones in the future, see how they are treated under different policies before making a choice.

Here is the real key to saving on your prescription drugs:

Most policies have a tier system, usually consisting of at least three tiers.

Your coverage and out-of-pocket costs vary based on a drug’s tier.

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.

Clearly there’s a lot to unpack here, so in next week’s story, I’ll bring you part two of this series, including when it’s best to use brand-name drugs instead of generic ones.

Publisher’s Note: Come April 2021, American retirees will learn about the most controversial change in Social Security in decades… and it’s likely going to hit where it hurts the most. Here’s how to get a head start on these imminent Social Security changes: click here for Bob’s latest findings.

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