Medicare Part D Costs in 2021
As with any part of Medicare, your Medicare drug plan costs will depend on a number of factors. You can be responsible for paying monthly premiums, annual deductibles, copayments/coinsurance, and Part D coverage gap expenses.
The Four Stages of Medicare Part D Prescription Drug Coverage
Medicare prescription drug coverage is unique in that it is divided into various stages. Your Part D drug plan expenses can change depending on how much you spend on prescription medications over the course of the year.
These four stages of Medicare Part D prescription drug coverage will impact how much you need to spend out-of-pocket for your prescription drugs:
- Deductible: You will have to cover your drug costs until you reach your yearly deductible. In 2021, the maximum Part D deductible is $445, though you can find plans with lower deductibles or even $0 deductibles.
- Initial Coverage: Your initial coverage starts after you have reached your deductible. This is when your Part D plan starts to cover your prescription drugs. You will either pay coinsurance or a copayment for your prescriptions during this time. After your total drug cost reaches $4,130, which is the initial coverage limit set for 2021, you will move into the coverage gap, or donut hole, stage.
- Coverage Gap/Donut Hole: Once you reach this stage, you will be responsible for paying 25% of the cost of your generic and brand-name medications. You reach the coverage gap once your total drug costs have reached $4,130. This amount includes both what you and Medicare pay for medications, but doesn’t include the price of your Part D premium. Not many people reach this threshold, but if you take especially expensive medications, it is a possibility that you should keep in mind.
- Catastrophic Coverage: To get to the catastrophic coverage stage, you have to have reached a $6,550 (the amount set for 2021) out-of-pocket threshold. This amount includes your premiums, coinsurance/copays, and the drug manufacturer’s 70% cost. Once this happens, what you pay for your medications drops significantly. Now you will only have to pay $3.70 for generic drugs and $9.20 for brand-name drugs, or 5% or retail price, whichever is higher. It is even more unlikely to reach this stage of drug coverage than the donut hole stage.
Coverage Gap/Donut Hole Stage
A few more details regarding the coverage gap, or donut hole, stage. Once you reach this stage, there is a limit on what your plan will cover for your prescription medication costs.
As mentioned, you only reach the Part D coverage gap stage once you and your plan have paid a combined $4,130, the initial coverage limit set for 2021, on prescription drug costs.
Once in the coverage gap, you will pay no more than 25% of the price of brand-name drugs (the manufacturer covers 70% of the cost and your plan 5%). However, 95% of the cost of the brand-name drugs that you purchase will count towards your out-of-pocket limit (everything but the 5% that your plan covers).
When it comes to generic drugs, you are responsible for paying 25% of the price while your plan picks up the remaining 75%. However, with these drugs, only the 25% that you pay will count towards the out-of-pocket limit that gets you out of the coverage gap.
In the donut hole stage you are also responsible for covering 25% of the drug dispensing fee, while your plan will pick up the remaining 75%. Again, the 25% that you pay towards the dispensing fee will count towards your out-of-pocket limit, while the 75% that your plan picks up won’t.
The donut hole stage ends when you have spent a total of $6,550. Your yearly deductible, coinsurance, and copayments; the discounted price that you pay on brand-name drugs in the coverage gap; and everything else you are responsible for paying during the coverage gap all count towards this $6,550 out-of-pocket threshold.
Your Part D premium, the pharmacy dispensing fee, and what you pay for drugs that aren’t covered by your plan do not count towards this out-of-pocket threshold.
Part D Out-of-Pocket Costs
As with most Medicare plans, you will be responsible for paying some out-of-pocket costs. These may include your premium, copayments/coinsurance, and the full cost of prescription drugs until you reach your annual deductible amount.
On top of this, you will be responsible for covering the cost of medications that are not included in your plan’s drug formulary unless you and your physician request and are granted an exception.
With the majority of Part D plans, you will be responsible for paying a monthly premium. The amount of your premium will depend on the plan that you choose.
Remember that your premium does not count towards the out-of-pocket threshold that gets you out of the donut hole should you reach the coverage gap stage.
As is the case with Part B premiums, high income earners (over $88,000 or $176,000 if filing jointly) may have to pay an income-related adjustment amount in addition to their premium. Your income is taken from your tax returns from two years ago, so in 2021, from your 2019 taxes.
Part D plans also have yearly deductibles, which is the amount you pay out-of-pocket before your plan’s coverage kicks in. The maximum deductible has been set at $445 for 2021, but many plans have lower deductibles or even no deductible at all.
Even though you have prescription drug coverage under a Part D plan, you will still be responsible for covering copayments and/or coinsurance after you reach your plan’s deductible.
Your copayment and coinsurance amounts will vary depending on your plan, the total costs of your drugs (which can change throughout the year), and which drug tiers the medications that you take are in.
If you have a limited income and resources, you may be eligible for assistance with your prescription drug expenses. Extra Help, also known as the Part D Low-Income Subsidy (LIS), is a program that was created to help people with their Medicare Part D costs like monthly premiums, annual deductibles, and coinsurance/copayments.
If you earn less than $1,630 per month ($2,198 if filing jointly), you may be eligible for the Part D Low-Income Subsidy. If you aren’t sure whether you qualify, get in touch with a licensed insurance agent who can answer any questions you may have.
You may get a notice from Medicare letting you know that you are eligible for or have been automatically enrolled in Extra Help. Otherwise, you can send your plan proof of eligibility, such as documents demonstrating that you receive Supplemental Security Income (SSI) or Medicaid, to enroll in the program.
Once your plan enrolls you in Extra Help, you will only have to pay up to the LIS (Low-Income Subsidy) drug coverage cost limit. In 2021 that’s $3.70 for generic and $9.20 for brand-name covered drugs.
The Part D Low-Income Subsidy Program also helps with the cost of your monthly premium, grants you a Special Enrollment Period, and eliminates any Part D late-enrollment penalties that you may have incurred.
So how much will Medicare drug coverage cost you?
Estimating your Medicare-related expenses can be tricky, especially when it comes to Part D drug coverage. What you will have to pay for your prescription drug coverage depends on a number of variables, such as whether you get your drug coverage through a Medicare Advantage plan or a stand-alone Part D drug plan. Reach out to a team member here at Medicare Plans Direct today to have all of your Medicare Part D questions answered.