Medicare D: Prescription Drug Coverage

Medicare D: Prescription Drug Coverage
Posted 10/04/05

Because FEHBP plans pay well for prescription drugs, adding Medicare D prescription drug coverage would not make sense for most federal retirees.

Medicare prescription drug coverage is insurance provided by private companies that have been approved by Medicare. Starting January 1, 2006, new Medicare prescription drug coverage will be available to everyone with Medicare coverage.

The monthly premiums will be $32.20. After a $250 deductible, Medicare will pay 75 percent of the cost of each prescription and the beneficiary will pay 25 percent up to $2,250 in total costs. (At this point the beneficiary will have paid a total out-of-pocket expense of $750.)

Once a beneficiary has $2,250 in drug costs (a combination of costs paid by the beneficiary and Medicare), he/she hits a coverage gap or "doughnut hole", as it is popularly called. At this point Medicare will stop covering drug costs until the beneficiary spends an additional $2,850. These costs may be paid by the beneficiary or another person or entity, but not by another insurance plan.

Once the beneficiary has paid this $2,850, he/she is eligible for catastrophic coverage. At this point, depending on whether the beneficiary receives a low-income subsidy, drug costs could be nothing, $2 for generics and $5 for brand names, or 5 percent of the cost of the prescription.

Because FEHBP plans pay well for prescription drugs, adding Medicare D prescription drug coverage would not make sense for most retirees. There are exceptions, particularly people with low incomes and limited assets who will not have to pay Part D premiums or deductibles and will not face a gap in coverage. A second possible exception would be a person enrolled in an FEHBP plan with a weak drug benefit.

Since any participant in any FEHBP plan has "creditable" drug coverage,he/she can enrol in Part D in later years without paying a penalty. Or, if one loses FEHB coverage and within 63 days joins a Medicare drug plan, he/she will not have to pay a penalty.

Medicare D participants generally must be enrolled in a specific drug plan, which in turn will contract with the pharmacies that will comprise their primary network. The administration expects that there will be about twelve drug plan choices available. A web-based Medicare Precription Drug Finder will be available on October 13 and open season will begin on November 15.