If you enrolled in Medicare Parts A or B, Medicare Part D is an alternative for your prescription drug coverage. Before you enroll in Medicare Part D, you'll need to know how the coverage works. Read on to learn everything you need to know before deciding on a plan to cover prescription drugs.

How to Get Drug Coverage

When you register for Medicare, you need to purchase both Part A and B coverage, usually called Original Medicare. In summary, Part A covers hospital expenses, and Part B covers doctors' fees and some outpatient services. Neither of those two basic coverages helps you to pay the cost of prescription drugs.

You must enroll in a plan to get drug coverage when you first become eligible for Medicare. If you don't, you'll probably pay a late enrollment penalty for the term of your drug coverage. There are two ways to get drug coverage.

If you plan to use Parts A and B, or have a Medigap Plan

Some people decide to use only Parts A and B. Others want more coverage and enroll in a Medigap plan, also known as a Supplemental plan. The Medigap plans help to pay for costs not covered under Medicare Parts A and B, including copays, coinsurance, and deductibles. A Medigap plan doesn't cover prescription drug costs.

If you fit into either of those two categories, you would get drug coverage by enrolling in a Medicare Part D plan. It adds prescription drug coverage to Original Medicare and Medigap plans.

If you plan to use a Medicare Advantage Plan (Part C)

Independent insurance companies offer Medicare Advantage plans that are available to you after you've enrolled in Parts A and B. However, these plans replace Original Medicare, and typically provide prescription drug coverage.

Keep in mind that you can't have both an Advantage Plan and a Part D Plan at the same time. For example, let's assume that you already have an Advantage plan that offers drug coverage. If you enroll in a Part D plan, the insurance company providing your Advantage plan will drop you from their insurance plan.

What Is Medicare Part D?

Part D is insurance that helps you cover the costs of medication. Private insurance companies offer this federal program to Medicare enrollees. In return for a monthly fee, you can purchase your medication at pharmacies approved by the plan. You will pay some of the cost of the medication and the insurance company will pay the balance.

How Medicare Part D Plans Work

Medicare requires that Part D companies follow a standard level of coverage. However, individual plans can cover medications differently. You can understand how a plan covers your medications by reviewing the list of drugs they cover. That list is called a formulary.

Formularies and Tiers

The formularies are most often broken out by "tiers," or levels of coverage. Here's an example:

· Tier 1: This tier would have the lowest copay, which could vary depending on the insurance company. Medicine in this tier would probably be generic drugs.

· Tier 2: This tier would call for a copayment that is higher than Tier 1. Drugs in this tier would probably be "preferred" brand name drugs that the insurance company can obtain at a lower price than those in Tier 3.

· Tier 3: The copay for this tier would be higher than Tier 2. Drugs in this tier would probably be "non-preferred" brand name drugs that cost the insurance company more than Tier 2 drugs.

· Specialty: Very high cost drugs would fit into this tier. These drugs may have a coinsurance fee equal to a percentage of the drug cost rather than a flat-fee copay.

There may be cases where your doctor prescribes a drug in Tier 3. If there is a drug that is just as effective in Tier 2, you may be able to save some money. And, generic drugs are the lowest cost of all. If your doctor prescribes a brand name drug, you might save money if you ask your doctor to prescribe the generic version.

Not all Medicare Part D insurance companies will charge the same copay or assign drugs to the same tiers. It's important that you review a plan's formulary to make sure the plan covers your medicine before you choose a Part D plan.

Coverage Rules

Another issue to consider is the coverage rules that a Part D insurance company follows. These are the rules that a plan could use.

Opioid safety. As of January 1, 2019, some plans may create a program to make sure that patients are using opioids effectively. For example, if you get prescriptions from more than one doctor, the plan may coordinate with the doctors to make sure the drugs are medically necessary and used safely.

The plans may also send an alert to your pharmacy, asking for additional safety checks. For example, your pharmacist will check to be sure that you're not filling prescriptions that would mean you're in danger of an overdose. You can appeal the limitations or ask your plan for an exception.

Prior authorization. A plan might require a prior authorization before it will cover certain drugs. The plan will review the prescription to ensure that it is medically necessary, and follows the plan's rules for prescribing the drug.

Limits on Quantity. The plan may limit the number of pills that you receive at one time. That is typically called a Quantity Limit. Again, your doctor will need to ask for an exception if it is medically necessary.

Step Therapy. Your doctor can prescribe different drugs to treat the same condition. The plan may determine that a similar and less expensive drug could replace the more expensive drug your doctor prescribed. In that case, they will require "step therapy." You will be required to try the less expensive drug first before stepping up to the more expensive one. If it works, you've saved money. If it doesn't work, your doctor can ask for an exception.

If your doctor believes your health will suffer if you take the less expensive drug, you can ask for an exception before trying it. For example, if you've taken the less expensive drug in the past and suffered severe side effects, you could ask for an exception in advance.

Hospital Outpatient Drugs. If you get medicine in the emergency room, for example, they probably won't be covered by Part B. Your Part D coverage may cover them. You might need to pay for the medicine at the time you receive it, or you may receive a bill for it. Either way, contact your Medicare Part D insurance company for information on coverage.

Where to Fill Prescriptions

A Medicare drug plan will often offer different costs depending on where you get your prescriptions filled. In other words, the plan will have tiers of pharmacies in the same way they assign tiers to medication.

A plan may have preferred pharmacies where your copay will be lower. All other pharmacies can fill your prescription, but the copay will be higher. Some plans also offer a mail order pharmacy. Getting prescriptions by mail usually has the lowest copay.

Some people will take new or one-time prescriptions that they need right away to a preferred pharmacy. Then, if they will be taking the medication regularly, they will obtain refills using mail order.

Medicare Part D Costs

Costs for a Part D plan consist of three elements, a monthly premium, an annual deductible, and copayment or coinsurance cost for each prescription filled.

Monthly Premiums

Most Part D plans charge a monthly premium. Each plan provider determines the premium you will pay. There are times when some people pay a fee in addition to the standard monthly premium.

Medicare charges the additional fee, called a Part D Income-Related Monthly Adjustment (Part D-IRMAA). Medicare calculates the amount of this adjustment based on the Modified Adjusted Gross Income shown on your tax return from two years ago. Medicare uses the two-year-old return because that's the most recent one that the IRS provides to Medicare.

If your income was above the allowed amount for the current year, Medicare will charge you the Part D-IRMAA. You pay this fee to Medicare, not your Part D plan insurance company. Things to keep in mind:

· If you don't pay the Part D-IRMAA, your Medicare Part D coverage will be cancelled.

· If your income goes down over time, you can ask let Medicare know by completing form SSA-44.

The Part D-IRMAA rules apply if you have a separate Part D plan from a private insurance company. It also applies if you have drug coverage through a Medicare Advantage plan.

Annual Deductible

Most drug plans charge an annual deductible. You must pay that deductible amount each year before your drug coverage starts. Different plans can charge different amounts. However, Medicare puts a cap on the deductible any plan can charge in a given year.

Copayments or Coinsurance

If your plan requires you to share the cost of drugs, the amount you pay for each prescription can be:

· A copayment, which refers to a standard amount you pay for every drug in a tier (see Formularies and Tiers above)

· Coinsurance, which is a percentage of the cost of the medicine in a tier

Drug Payment Stages

Most Medicare Part D plans define drug payment stages. Those stages are determined based on the total cost of your prescriptions. Here's how the payment stages work.

Stage 1: Deductible. In this stage, you would be paying the deductible. You would pay the full amount of all prescriptions until you reach your deductible.

Stage 2: Initial Coverage. During this stage, you would pay the copayment or coinsurance amount for each prescription. Your drug plan would pay the balance.

You would stay in Stage 2 until you reach the limit for the initial coverage period. The limit for coverage will likely change every year. The limit calculation includes the costs that you pay and the costs your plan pays. So, it is the overall cost of your medication, not just the part you have paid. You may never reach that limit. But, if you do, you go into Stage 3.

Stage 3: Coverage Gap. This is the infamous "donut hole." Your drug plan reduces the amount it pays for each prescription. Therefore, you will pay more for each prescription while you stay in the coverage gap stage. Once you've spent the out-of-pocket limit for the current year, you enter Stage 4.

Stage 4: Catastrophic Coverage. In this stage, you pay a small copayment or coinsurance. It will be less than you paid in the Initial Coverage period.

These stages repeat every year. So, on January 1 of each year, you start over in Stage 1: Deductible and move through the stages as necessary. Here's a specific example for the year 2019.

· Stage 1: Deductible. The upper limit for a deductible in 2019 is $415. If your plan has a deductible, they can't charge any more than that set amount.

· Stage 2: Initial Coverage. You would pay the standard copayment or coinsurance charged by your plan for each prescription. In 2019, the limit for the initial coverage period is $3,820. Once the total expense of your prescriptions reaches that amount, you move to Stage 3.

· Stage 3: Coverage Gap. For brand name drugs, you will pay no more than 25 percent of the cost for each covered drug. For generic drugs, you will pay 37 percent of the cost. Once you have reached the 2019 Out-of-Pocket Threshold of $5,100, you will enter Stage 4.

· Stage 4: Catastrophic Coverage. In 2019, you would pay 5 percent of the cost or $3.40 for generic drugs, and 5 percent or $8.50 for other drugs, whichever is higher. Some plans may vary.

Calculating the Out-of-Pocket Threshold in the Coverage Gap includes the following costs:

· Your annual deductible amount and the total of any copayments or coinsurance you have paid

· The discount for the brand name drugs you get in the coverage gap

· The amount you've paid for drugs in the coverage gap

Help for Paying Medicare Part D Drug Costs

If you need help paying for your medications, you can explore a number of alternatives.

· Medicaid

· State Medicare Savings Programs (MSP)

· PACE (Program of All-Inclusive Care for the Elderly)

· Extra Help from Medicare

· Insure Kids Now

· Supplemental Security Income

The Extra Help program from Medicare can be extremely helpful. Many people don't think they qualify because the program is for people with limited income and resources. It may be worth exploring because of the way the program defines its requirements.

The income limits for 2018 are up to $18,210 for people filing taxes as an individual, and $24,690 for married couples filing jointly. You can also have up to $14,100 in resources if you're single or $28,150 for a married couple.

To calculate resources, you would include any money you have in a checking or savings account, and stocks and bonds. However, these things don't count as resources: your home, one car, a burial plot, up to $1,500 for burial expenses if you've saved for that specifically, furniture, and household and personal items. If you don't qualify for the Extra Help program, there may be state programs that can help.

How to Choose a Medicare Part D Plan

In most parts of the U.S., you'll have a choice of Medicare Part D plans. But, not all insurance companies offer that coverage country wide. Many online resources are available to help you identify the plans that are available in your area. For example, you can use the Medicare Plan Finder to locate Medicare Advantage plans or Medicare Part D plans that operate in your area.

Here are things you need to consider:

· Make sure your drugs are covered. Not all plans cover all drugs. Make sure the plan you select will cover your specific medications.

· Check costs for generic drugs. Some plans have low or no copayments for generic drugs.

· Check costs for high-cost drugs. If you take high-cost drugs, make sure the plan covers them in the coverage gap.

· Enroll even if you have low drug costs. Keep in mind that if you don't enroll in a drug plan when you're first eligible, you'll pay a penalty if you need to enroll later. Find a plan with a low deductible and make sure you've covered if your needs change.

It's also a good idea to determine how your plan will work with other plans or programs you're involved with. For example, if you receive Medicaid or Supplemental Security Income Benefits, make sure you understand how those programs will work with your Part D plan.

In some cases, you may not need a Part D plan. For example, if you are already receiving veterans' benefits or Federal Employee Health Benefits among others, you may get better coverage if you stay with those programs.

How to Change or Cancel a Medicare Part D Plan

It makes sense to review your Medicare choices every year. Medigap, Advantage and Part D plans change periodically, and it's a good idea to review your choices based on costs for the coming year.

For most people, you need to make changes to your drug plan during the Medicare Open Enrollment period. It runs from October 15 through December 7 each year. There are some exceptions. For example, you could enroll outside the open enrollment if you moved and your plan doesn't operate at your new home, or if you left your employer and lost coverage.

If you want to change plans, just enroll in the new plan during open enrollment. Your old plan will automatically end when the new one begins.

If you want to drop coverage entirely, you need to contact Medicare to give them notice. You'll also need to contact your existing plan and ask them to send you a disenrollment notice. You'll need to review and sign the notice before you return it to the plan.

If you want to continue getting drug coverage, you'll need to enroll in a new plan within 63 days after you left your old one. If you go longer than that, you'll only be able to enroll during open enrollment, and you may pay a late enrollment penalty.

How Will You Cover Your Prescription Costs?

Medicare wants seniors to have the help they need to pay for their medication. You may choose to join a Medicare Advantage Plan that includes Part D drug coverage. You may choose to enroll in a Medigap Plan and supplement it with a Medicare Part D plan. Or, if you enroll in Original Medicare (Parts A and B), you can also supplement that coverage with a Medicare Part D plan.

You just need to do the research to determine which combination of plans will give you the best coverage possible.