Medicare Part D prescription drug coverage has been available as an option for Medicare enrollees since 2006. Before that, Medicare beneficiaries had to pay full cost for all their drugs, which was a financial burden for millions of people. Luckily, Medicare recipients have the opportunity to sign up for prescription drug coverage to help them with the high costs of medications.
Today in the United States, 45 million people, or 70 percent of all Medicare beneficiaries, are enrolled in a Prescription Drug Plan. According to the national average for 2020, the monthly base beneficiary premium for a Medicare prescription drug plan is $32.74. For most people who are enrolled, this cost is just a fraction of what they might spend on prescription drugs without this coverage.
If you are close to the age of eligibility for Medicare, you may be wondering if you should also sign up for prescription drug coverage. Even if you are not taking medications currently, there is no guarantee that this will be the case in the years to come. But making a decision to enroll in a Prescription Drug Plan is more complex than just basing it on what medications you take now, and it is worth taking the time to consider your options.
Here is some important information about prescription drug coverage, what it includes, and when you should enroll so you can avoid penalties.
Are you eligible to enroll in a Medicare Prescription Drug Plan (PDP)?
Before you can enroll in prescription drug coverage, you must be enrolled in Medicare Part A and/or Part B. To be eligible for Medicare, you must meet the following requirements:
• You must either be a United States citizen or have been a legal resident of the U.S. for at least five years.
• You are 65 years old.
• You are younger than 65 but have a qualifying disability and have been receiving Social Security Disability Insurance or Railroad Retirement Board benefits for 24 months.
• You or your spouse has worked and paid Social Security taxes for at least 40 quarters (10 years).
In addition, you must reside in the service area covered by the prescription drug plan you enroll in.
Do you need prescription drug coverage?
If you are in good health in your mid-60s, you may not need many prescription drugs. While saving that monthly premium can be tempting, it may not be a real savings in the long run. You may need expensive prescription drugs at some point in your life, and with the high cost of drugs, not having coverage could be financially devastating. Also, signing up for a plan outside your initial enrollment period means adding late enrollment penalties to your monthly premiums forever.
As a compromise, you can look for a Prescription Drug Plan in your area that offers basic coverage at a lower price. If you need to switch plans later on, you can protect yourself from penalties with a basic plan initially.
If you are enrolled in Medicaid, you will be enrolled in a Medicare Prescription Drug Plan automatically when you meet Medicare’s eligibility requirements. Through Medicaid there is no monthly premium for the drug coverage plan.
If you plan on enrolling in a Medicare Advantage policy upon eligibility, your plan may include prescription drug coverage. If this is the case, you do not need to purchase further coverage. However, if your MA plan does not include prescription drug coverage, you can enroll in a separate plan at the same time.
If you have group health insurance along with Original Medicare coverage because you are still working, your employer-sponsored policy may include drug benefits. Medicare considers this coverage to be creditable if it covers the least amount that a standard Medicare Part D plan covers.
Having creditable coverage is important if you decide to switch over to a Medicare prescription drug plan after your employment ends. As long as you have creditable coverage, which can include health insurance that comes from an employer group or union plan, the United States Department of Veterans Affairs, TRICARE, and Indian Health Services, for instance, you will not have to pay late enrollment penalties later.
When can you enroll in a Medicare Prescription Drug Plan?
When you enroll in Medicare Part A and/or Part B, you can then enroll in a drug plan. If you plan to sign up for Medicare when you are 65, you have a seven month Initial Enrollment Period (IEP) to do so. This period begins three months before the month of your 65th birthday, includes your entire birth month, and extends for three months past the month of your 65th birthday. During your IEP, you can enroll in a stand-alone Part D plan if you get your Part A and Part B benefits through Original Medicare. Or, you can enroll in a Medicare Advantage plan that includes prescription drug coverage.
During the Annual Election Period (AEP), which runs from October 15th to December 7th annually, you can enroll in a Medicare Advantage prescription drug plan, use this period to switch your plan, or disenroll from your plan.
There is also another period when you can make certain changes to your prescription drug plan. This is the Medicare Advantage Open Enrollment Period (OEP) which runs between January 1st and March 31st every year. At this time you can switch Medicare Advantage plans to get prescription drug coverage, or you can drop your MA plan and go back to Original Medicare Parts A and B and purchase a stand-alone prescription drug plan.
What is the late enrollment penalty?
If you do not enroll in a prescription drug plan during the available Medicare enrollment periods and you are without creditable coverage for 63 consecutive days, you must pay a late enrollment fee if you enroll in a plan at a later date.
The late enrollment penalty is based on the number of months you were not covered but were eligible for coverage. The amount of the penalty is found by multiplying 1 percent of the national base beneficiary premium of $32.74 (as of 2020) by the number of months you were without coverage while being eligible. The amount is rounded to the nearest $10.00 and added to your prescription drug plan’s monthly premium for your duration on Medicare.
It is important to take possible future health care needs and costs into account when deciding whether you need Medicare prescription drug coverage. If you have a choice of plans in your area, be sure to get all the details about what drugs the plans cover, how much the copayments are, how much the monthly premium is, and if they have in-network pharmacies close to you. Having this information will help you find a plan to match your healthcare needs as well as your financial capabilities.