Medicare Drug Cover Center:
Frequently Asked Questions about the Drug Plans
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Below are some frequently asked questions about the plans.
- What are these “drug plans”?
- Are plans available everywhere in the U.S.?
- How much does enrollment cost?
- What benefits do the plans have to offer?
- What drugs do the plans have to cover?
- Can plans limit what they cover?
- How much do beneficiaries have to pay per prescription?
- How are the drug plans paid?
- How can a consumer decide whether to enroll or not?
- How can consumers compare plans?
1. What are these “drug plans”?
The Medicare drug benefit is available through Medicare managed care plans (Medicare Advantage) and Medicare Prescription Drug Plans.
- Medicare Advantage Plans: The companies that are offering the Medicare drug benefit include health maintenance organizations (HMOs) and other managed care plans that participate in the Medicare Advantage program (formerly Medicare+Choice). These managed care plans offer the drug benefit as part of a total package of health care—enrollees who sign up with a Medicare Advantage plan have to see the doctors that participate with the plan and go to hospitals in the plan’s network. If they do, they may have lower cost-sharing, meaning that their out-of-pocket costs could be lower. If they don’t stick with network providers, the plan may not cover any of the cost of care or may severely limit the amount covered. With the start of the Medicare drug benefit, most of these plans now offer drug coverage.
- Prescription Drug Plans (PDPs): Many companies offer stand-alone drug coverage—they cover prescription drugs and no other Medicare services. Individuals enrolled in these plans will get the rest of their health care through Medicare’s traditional fee-for-service system, meaning that they are not limited in physician or hospital selection. However, to avoid extra charges, they may want to confine themselves to physicians who accept Medicare’s payment as payment in full. Typically, PDPs are operated by insurance companies. People in Medicare can only sign up for a drug plan that operates in their area. In most areas of the country, there are at least 30 PDPs to choose from.
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2. Are plans available everywhere in the U.S.?
Every area across the U.S. has several drug plans to choose from. Medicare has divided the country into regions, and if a plan wants to operate in any part of a region, it has to serve the entire region. Nine companies serve every region of the country: Aetna, CIGNA, Medco, Memberhealth, Pacificare, Silverscript, Unicare, United Health Care, and Wellcare. Most of these companies offer more than one plan.
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3. How much does enrollment cost?
Drug plans charge a monthly premium. With Medicare Advantage plans, the costs for the drug benefit are part of the total monthly premium and are not charged separately.
Plans set their premiums, and they can't raise their premiums until the end of the calendar year. However, there is no limit on what plans can charge or on how much they can increase premiums annually. In 2006, the national average monthly premium for PDPs is $32 ($384 a year). That is just the average. Many companies offer multiple plans—a “basic” plan that covers the minimum benefits that Medicare requires, a second-level “enhanced” plan that covers a little more, and typically a third-level plan that covers still more. Premiums rise with each level, and some of the most generous plans cost nearly $70 a month.
For those beneficiaries who are eligible for low-income assistance, Medicare will only pay full premium costs for the drug benefit for plans with premiums that are at or below the average price for the region. Beneficiaries with low-income assistance can sign up for more expensive plans, but they will have to pay the difference between the higher and average premiums themselves.
4. What benefits do the plans have to offer?
Every plan has to offer something that is at least equal in value to the Medicare standard benefit that was established by law. To read more about those benefits, click here. Plans can vary their deductibles and per-prescription cost-sharing as long as the value of the benefits is equal to the value of the basic drug benefit (as determined by an actuary).
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5. What drugs do the plans have to cover?
Medicare will only pay plans for drugs that are covered by Medicare, known as “Part D drugs” (see Families USA's MMA regulations analysis). It is important to note that plans don't usually cover all Part D drugs.
Plans have to cover two drugs in every therapeutic class or category. These classes and categories are determined by a not-for-profit organization called the U.S. Pharmacopeia (USP), which has a contract with Medicare to develop and annually update the list of classes, categories, and drugs in each. Plans can use USP classes and categories, or they can develop their own. For some categories, such as anti-psychotic medications and certain HIV/AIDS drugs, plans have to cover all the drugs in the category or class.
CMS reviews every plan’s list of covered drugs—known as a formulary—to make sure it complies with regulatory requirements. (See Families USA's MMA regulations analysis.) CMS has also issued specific guidance outlining the criteria it will use to review plan formularies. (See CMS Formulary Guidance.)
During the year, plans can change the list of drugs they cover, but they have to give patients 60 days’ notice before the change becomes effective. Plans cannot change their formularies around the annual plan enrollment period (enrollment runs from November 15 to January 1, and plans cannot change their formularies for 60 days after January 1).
6. Can plans limit what they cover?
Yes. Just because a plan has a drug on its formulary doesn’t mean that access to that drug is not restricted. Plans can limit access to formulary drugs in several ways:
- plans can place limits on the quantity of drugs they will cover, either in terms of the number of pills they will pay for per prescription or in terms of the amount of times a prescription can be refilled;
- plans can require that patients get pre-approval (also known as prior authorization) from the plan before they will cover particular drugs; and
- plans can require that patients try low-cost therapies first (often the generic version of a medication, if available) before they will cover higher-cost medications (often a brand-name drug).
There is no limit on the number or types of restrictions that plans can place on a drug.
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7. How much do beneficiaries have to pay per prescription?
The amount that beneficiaries pay for each prescription varies a lot from plan to plan. Most of those in Medicare who get low-income help with their drug benefit will have a set amount they have to pay per prescription throughout the year. For others, the cost-sharing (out-of-pocket costs) per prescription varies depending on the rules of their plan and is probably different for different drugs. The drug benefit also has a gap in coverage (also known as the “doughnut hole”) (see illustration), and during that gap, beneficiaries have to pay the plan’s full price for all drugs.
Plans negotiate prices directly with drug manufacturers—the law bars Medicare from negotiating directly for beneficiary discounts. Plans are then required to pass some price discounts along to enrollees, but the amount of these discounts is not specified in the law.
As a result, prices vary a great deal from plan to plan. The price a plan charges for a drug is important because the plan uses its drug prices to calculate when an enrollee has spent $2,250 on drugs, which is when coverage stops and the gap in coverage begins. As noted above, during the coverage gap, enrollees have to pay 100 percent of the plan’s drug price. (See Families USA’s report on drug plans prices, Falling Short).
Plans can change the price they charge for a drug at any time without giving any notice to beneficiaries.
Beneficiaries can buy drugs—possibly at cheaper prices—outside of their plan, but the amount they pay will not count toward the annual out-of-pocket amount they must reach to qualify for catastrophic coverage.
8. How are the drug plans paid?
For the plans that offer the basic benefit, the premiums that Medicare beneficiaries pay make up about 25 percent of the monthly payments the plans receive. Medicare pays the remaining 75 percent. These amounts are fixed monthly payments based on the number of Medicare beneficiaries enrolled in each plan. Even if a plan offers a more generous—and more expensive—benefit, Medicare still bases what it pays on the cost of the basic benefit. Beneficiaries then have to cover the remainder by paying higher monthly premiums.
Because of the way the benefit is structured, plans’ financial responsibility for drug costs is limited. Beneficiaries must initially pay the full cost of their medications during the deductible. Then, plans are responsible (at risk) for 75 percent of a beneficiary’s drug expenses up to $2,250 in total drug costs. After that, the plan’s responsibility essentially ends—unless a beneficiary spends a total of $3,600 out of his or her own pocket. At that point, catastrophic coverage kicks in and plans must again cover beneficiary drug costs. However, CMS offers generous reinsurance protection so that plans’ financial risk for higher-cost enrollees is limited.
This CMS illustration shows plan liability compared to enrollee liability for drug costs.
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9. How can a consumer decide whether to enroll or not?
First, consumers should look at their current coverage (if they have it). This coverage may very well be better than what Medicare is offering and, if so, consumers should try to retain it, when possible. However, consumers who already have coverage will need to find out whether that coverage is “creditable,” meaning that it is considered by Medicare to be as good as the Medicare basic benefit. Consumers can find out whether their coverage is creditable from the group or company that provides that coverage. Below we discuss several kinds of coverage that consumers may already have.
- People in a Medicare managed care plan (Medicare Advantage) who opt to stay enrolled in that plan will have to receive their drug benefit through that plan. If they are not happy with the plan's drug benefit, during an enrollment period, they can drop out of the plan, receive traditional Medicare, and enroll in a stand-alone Medicare prescription drug plan. (Initial enrollment for drug plans runs from November 15, 2005 to May 15, 2006. Annual enrollment thereafter starts on November 15 of each year).
- People with employment-related retiree coverage may be able to keep that coverage and not incur any late enrollment penalties if they sign up for the Medicare drug benefit later. Whether such a beneficiary is charged a late enrollment penalty will depend on whether or not the coverage their retiree plan offers is considered as good as coverage under Medicare. If it is, a beneficiary can keep that coverage without fear of late enrollment penalties. Employers and other sponsors of employment-related retiree plans must let plan members know whether the plan's drug coverage is considered comparable to Medicare's.
- For people in Medicare with coverage through the VA (Department of Veterans Affairs), the Federal Employees Health Benefits Program (FEHBP), or Tri-Care, their coverage is automatically considered as good as Medicare's and can be kept without penalty.
Consumers who don’t enroll by May 15, 2006, and who don’t have creditable coverage will pay a late enrollment penalty. That penalty is equal to one percent of the average premium costs per month (without drug coverage)—that’s $0.32 a month starting in May 2006, and this figure will be higher in 2007. The penalty is added to the beneficiary’s monthly premium if the beneficiary ever enrolls in the program. For most in Medicare, the penalty is never lifted (for those eligible for low-income help, the penalty is reduced and time-limited).
10. How can consumers compare plans?
State Health Insurance Assistance Programs (SHIPs) have counselors who can provide individualized assistance with plan selection. Click here to find the SHIP in your state, including their phone number and other contact information.
Assistance is also available by phone by calling 1-800-MEDICARE or online at www.medicare.gov. The Medicare Web site provides a tool visitors can use to compare drug plans in their area. However, the online tool is very complicated, and the information is not always up-to-date or consistent with the information from the drug plans. Consumers should confirm information on drug coverage, costs, and restrictions with plans directly before enrolling.
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