8 Things You Should Know About Medicare Part D Prescription Drug Coverage

Financial Planning Association

On Jan. 1, Medicare formally launched its first prescription drug coverage, known as Part D. Enrollment began Nov. 15, 2005, for the program, which gives Americans 65 and older access to coverage from dozens of private insurers subsidized by the agency. Current Medicare recipients have until May 15, 2006, to enroll or risk a penalty.

For many seniors, the sheer number of coverage providers assigned by the government will make Part D complicated. But if you are already working with a financial planner, it might be worth asking their help as well. Signup is not mandatory, but experts advise even those who already have private drug coverage to check out Part D just to understand the proper ways to transfer to the program if they need to later on. Children of seniors might also want to brush up on Part D in case they need to help their parents decide.

Here's a start of some basic information about Part D. For a more extensive overview of how Part D works, go to www.aarp.org/health/medicare/drug_coverage/medicarerx_coverage.html.

Obtaining the coverage: Part D has a "standalone" version of the plan that provides drug coverage alone to those who wish to stay in the traditional Medicare fee-for-service program for all their healthcare needs. There is also the managed care alternative, Medicare Advantage, a plan that covers both medical services and prescription drugs.

Types of coverage: This is where it gets tricky. In your state, there may be a dozen or more companies providing plans, and it's very important you get advice on which plans cover what drugs you're currently using or may be likely to use. You might also want to chat with your doctor about possible replacement prescriptions if alternate medications may make your choice easier. You will have the option to change plans once a year, so if you don't have to take many drugs now, then go with the lowest premium plan and then switch later. For a full overview of the available plans by state, go to www.medicare.gov.

What it costs: Under the standard benefit for 2006, participants will have to pay a premium between $20-40 a month (each plan varies) with an annual deductible of $250 before coverage kicks in. Afterward, participants would have to pay $500 of the next $2,000 of drug costs. After that, the next $2,850 in drug costs will have to be borne by the participant since Medicare requires recipients to pay $3,600 out of pocket before they'll pay any more. This is called "the doughnut hole," but people who also have drug coverage through a state drug plan or employer or union drug benefit might offer backup coverage through the gap, though it'll cost you more.

How you pay: Premiums may be automatically deducted from monthly Social Security checks or be paid directly to the plan. Unfortunately, spouses don't get a break. Everyone picks a plan and pays separate premiums. You'll be able to keep track of your spending from a monthly statement from your Plan D provider.

How do you compare your private insurance vs. Plan D? Your employer or union drug plan has to inform you by mail whether your coverage is "creditable," meaning, at least as good as the Part D benefit. If the answer is yes, stick with it. If not, then you need to decide whether to stick with it and pay a late penalty to join Part D.

What about current Medicare drug discount cards? Those go away next May 15 or until you sign up for Plan D coverage, whichever is sooner.

What about Medigap coverage? If your Medicare supplement insurance doesn't pay for drug coverage, you can add Part D. If you are receiving prescription drug coverage through Medigap, then you won't be able to join Part D, but if Part D looks better, then it's likely you'll be able to drop the drug coverage from your Medigap plan and lower the premium.

Avoiding scams: Companies with valid Part D plans can market by phone or mail, but not door-to-door. But they cannot enroll you over the phone — you will have to complete formal enrollment forms — which will require you to study your options — before you can join a plan.

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January 2006 — This column is produced by the Financial Planning Association® (FPA®), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. Please credit FPA and provide a link to FPA's Web site at www.FPAnet.org/Public if you use all or part of this column.

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