Medicare Part D, and why the cheapest plan is often the wrong one
Part D covers prescription drugs. Original Medicare does not, which is the gap Part D exists to fill.
Most people choose a Part D plan by looking at the monthly premium, picking the lowest one, and moving on. That is the most expensive mistake in this part of Medicare. What determines your actual annual cost is whether your specific medications are on that plan's list, and at what tier. Two plans with nearly identical premiums can differ by thousands of dollars a year depending on what you take.
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The formulary decides almost everything
Every Part D plan publishes a formulary, its list of covered drugs, sorted into tiers. Lower tiers cost you less. Higher tiers cost more.
A drug that is not on the formulary at all is generally not covered, and you pay full price.
This is why the premium is a poor guide. A plan with a low premium that puts one of your medications on a high tier, or omits it entirely, can cost far more over a year than a plan with a higher premium that covers everything you take at a low tier.
Check your actual prescriptions, by name and dosage, against the actual formulary. Every time. This is the single most useful thing anyone can do when choosing a Part D plan.
How your costs move through the year
Part D does not charge you the same amount every month. Costs move through phases as your spending accumulates, which is why a January refill and an August refill for the same drug can cost different amounts.
Deductible phase
If your plan has a deductible, you pay full cost for covered drugs until you meet it. Some plans have no deductible.
Initial coverage phase
You pay a copay or coinsurance, and the plan pays the rest, until combined spending reaches a threshold.
Catastrophic phase
Once your out-of-pocket spending hits the annual limit, your costs for covered drugs drop substantially for the remainder of the year.
The specific dollar thresholds are set annually and have been revised significantly in recent years, including changes to what happens after the initial phase. Anyone quoting you exact figures should be quoting the current year's numbers, not last year's.
The penalty nobody expects
If you go without creditable drug coverage after becoming eligible, and later enroll, you may owe a late enrollment penalty. It is added to your premium, and it is permanent. It does not go away once you have paid for a while.
Creditable coverage means coverage at least as good as standard Part D. Employer coverage often qualifies, but not always, and the plan is required to tell you which it is. Keep that notice.
The common trap is someone healthy who takes nothing, skips Part D because it seems pointless, then needs medication years later and finds a permanent surcharge attached to it. Enrolling when first eligible is usually worth it even with an empty medicine cabinet.
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Rules beyond the formulary
Being on the list is not always the same as being available immediately.
- Prior authorization. The plan must approve certain drugs before covering them.
- Step therapy. You may be required to try a lower-cost drug first, and only move to the preferred one if it does not work.
- Quantity limits. Caps on how much is dispensed in a period.
- Pharmacy networks. Plans have preferred pharmacies where costs are lower. Using a non-preferred pharmacy, even in network, can raise your price. Mail order is often cheaper for maintenance drugs.
None of these are hidden. They are published, and they are worth checking against the medications you actually take.
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Plans change every year, and so do you
Part D is the part of Medicare that most rewards an annual review.
Formularies get revised. Tiers shift. Premiums change. Preferred pharmacies change. And your prescriptions change, because health does.
Each fall you receive an Annual Notice of Change from your plan describing what is different for the coming year. Most people do not read it. It is worth ten minutes, because the plan that was optimal last year may not be this year and switching costs nothing but the comparison.
What to check before you enroll
- 1Is every medication I take on this formulary, by name and dosage?
- 2What tier is each one on, and what does that mean per fill?
- 3Does the plan have a deductible, and does it apply to my drugs?
- 4Do any of my medications require prior authorization or step therapy?
- 5Is my pharmacy preferred, standard, or out of network?
- 6Would mail order lower my cost for anything I take regularly?
- 7What is my estimated total cost for the year, premium plus drug costs, not just the premium?
Common questions
Do I need Part D if I take no medications?
Do I need Part D with a Medicare Advantage plan?
Can I use any pharmacy?
What if a drug I need is not covered?
When can I change plans?
Does the plan with the lowest premium cost me the least?
Compare your other Medicare options
Bring your prescription list
A licensed advisor will check every medication you take against the plans available where you live and show you the annual cost, not just the monthly premium.
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