Paying for Drugs When You Have a Medicare Supplement

For most people, the transition to Medicare is a welcome one, and it’s something that nearly all of us have in common. Yet despite the fact that Medicare eligibility is uniform and universal, the full range of coverage that Medicare beneficiaries have varies considerably from one person to another.

If you’re looking at a Medicare Supplement plan (Medigap), you already know that there are lots of options available, with lots of different price points and coverage levels. But you might also wonder: Does Medicare pay for prescriptions, and do you need any additional coverage once you pick out your Medigap plan?

To clarify, Medicare doesn’t cover prescriptions. And as with most things related to health coverage, your additional coverage needs are going to depend on your circumstances.

How Medicare Supplement Members Pay for Prescriptions

One way or another, you need to make sure you have prescription drug coverage. In most cases, that means having prescription coverage via a current or former employer or union plan or joining a privately-run Medicare Part D plan (Part D coverage is included in most Medicare Advantage plans, but it’s also available nationwide as a stand-alone purchase).¹

Grandfathered Medigap Plans

Medigap plans sold since 2006 do not include prescription coverage.² If you had a Medigap plan before 2006 that covered prescriptions (pre-2006 Plans H, I, and J included prescription coverage) and you’ve kept that plan, your Medigap plan is still providing at least limited prescription coverage. But most Medigap enrollees need to obtain their prescription coverage elsewhere.

Employer or Union Retiree Coverage

If you have creditable prescription coverage from a current or former employer or union (either your own or your spouse’s), you don’t have to buy a Part D plan.

If you lose your creditable prescription drug coverage in the future — for example, you retire or your plan cuts back on retiree coverage — or if you just decide you’d rather switch to a Part D plan, you’ll be able to enroll at that point without a late enrollment penalty.

Limited Part A and Part B Drug Coverage

What drugs does Medicare cover on its own? Original Medicare (Medicare Parts A and B, not to be confused with Medigap Plans A and B!) will only cover drugs that are:

• administered in the hospital (covered under Part A), or
• administered in a doctor’s office (covered under Part B).

So drugs that are injected or infused will generally be covered by Original Medicare. But any drugs that you have to pick up at a pharmacy, or receive by mail order, will not be covered by Original Medicare or any Medigap plan purchased after 2006.

Medicare Part D

If you don’t have creditable prescription coverage, you’re probably going to want to make sure you enroll in a Medicare Part D plan, even if you’re not currently taking any medications at all. If you don’t, you’re going to get stuck with a late enrollment penalty if and when you eventually decide to enroll in a Part D plan.

Fortunately, Medicare Part D is fully compatible with your Medicare Supplement. Medicare Part D isn’t related to Medicare Supplement (Medigap) Plan D. Medicare Part D is a program that pays for prescription drugs, while Medicare Supplement Plan D has that name simply because all of the standardized Medigap plans are denoted by letters, and one of them happens to be D.

Don’t Delay Part D

The late enrollment penalty for Medicare Part D is equal to 1 percent of the national average Part D premium, multiplied by the number of months that you delayed your enrollment in Part D and didn’t have other creditable coverage. The penalty amount gets added to your premium for as long as you have Part D — in most cases, that means for the rest of your life. And since the national average Part D premium tends to go up over time (it’s $33.19/month in 2019), the amount of your penalty will also continue to increase as time goes by, even after you’re enrolled in a Part D plan.

For example: if you’re currently enrolled in Part D but you delayed your initial enrollment by 40 months, your penalty amount in 2019 is 40 x 0.01 x 33.19, which means $13.28 is added to your Part D premium each month. But if the national average Part D premium goes up to, say, $36 in a few years, your penalty amount that year would be 40 x 0.01 x 36, which means you’d be paying an extra $14.40 each month (note that average Part D premiums can also decline from one year to the next, although the general trend has been an increase over time).³

So even if you’re not taking any drugs at all when you first enroll in Medicare, you’re probably better off enrolling in at least the lowest-cost Part D plan available in your area, rather than foregoing prescription coverage altogether.

Finding Part D

Plan availability varies depending on where you live, but there are at least 22 plans available in each state in 2019, and you’ll be able to find at least one Part D plan with premiums under $20 per month. Enrolling in a plan when you’re first eligible — even if it’s the lowest-cost option — will ensure that you have prescription drug coverage in place if and when you end up needing a costly medication. Early enrollment will also ensure that you don’t face a late enrollment penalty if you decide to switch to a different Part D plan in a future year — perhaps if and when you’re in need of an expensive medication that’s better covered by a different plan.

There is an annual open enrollment window for Part D plans, so you’re not stuck with the plan you initially select. During open enrollment, you can switch to a different Part D plan that will cover drugs you need, regardless of your health status or medication needs (note that this is not the same as the rules for Medigap coverage. In most states, if you want to switch to a different Medigap plan after your initial enrollment window ends, you’ll be subject to medical underwriting).

If you opt to go without prescription coverage altogether, you’d face a late enrollment penalty if and when you did sign up, and you’d also be limited to signing up only during the annual open enrollment period, with coverage effective the following January. So let’s say you go without prescription coverage and then a few years down the road you find yourself in need of expensive medication in April. You’d have to wait until the fall to enroll in a Part D plan, and it wouldn’t take effect until January.

Part D Prices

Medicare Part D plans tend to range in price from as low as $10/month to as much as $150/month, although premiums vary from one area to another, and enrollees with low incomes can access subsidies that help to pay both the premiums and the Part D out-of-pocket costs.⁴

For all beneficiaries, Medicare Part D plans are heavily subsidized by the federal government. General fund revenues cover nearly three-quarters of the Part D program’s expenditures, while premiums paid by enrollees cover only about 16 percent of the cost.⁵ Enrollees with higher income ($85,000+/year) pay higher premiums, regardless of which Part D plan they select.

Even if you’ve selected one of the most comprehensive Medigap plans (Plan F or Plan G), your medical coverage isn’t exactly complete if you don’t also enroll in a Part D plan, assuming you don’t have other creditable drug coverage.

How Will Part D Coverage Complement Your Medicare Supplement?

Once you enroll in a Medicare Supplement and a Part D plan, you’ll have a solid level of coverage. Medicare Part D has the best chance of covering a drug you need.

Your Original Medicare will cover the bulk of your inpatient and outpatient costs, your Part D plan will protect against substantial out-of-pocket prescription costs, and your Medicare Supplement will pick up some or all of the out-of-pocket costs you’d otherwise incur for inpatient and outpatient care!

Medicare Part D plans are sold by private insurers. These insurers have quite a bit of flexibility to design Part D plans (unlike Medigap policies, which are standardized and don’t vary from one insurer to another). But there are some minimum requirements for all Part D plans:

• If your Part D plan has a deductible, it can’t be more than $415 in 2019.
• There’s no longer a donut hole for brand-name drugs in 2019, and it will be eliminated for generic drugs as of 2020.⁶ So although the amount you’ll pay for your medications will vary depending on your plan, it won’t exceed 25 percent of the cost of brand name drugs. For generic drugs, however, your out-of-pocket expense can be as high as 37 percent of the cost in 2019 (here’s an overview of how the donut hole works).
• Although Medicare Part D plans don’t have to cap your total out-of-pocket costs, your costs will be significantly limited once your total medication costs reach a level that’s considered catastrophic. At this point, for the rest of the year, your drug costs will be capped at the greater of: five% of the retail cost of the drug, or a flat fee of $8.50 for brand name drugs and $3.40 for generics.

Do Discount Drug Plans Work with Medicare Supplement Plans?

Some people with Medicare opt for non-Medicare prescription drug plans that offer discounts on medications, instead of Medicare Part D prescription insurance. It’s your choice, but you’ll want to carefully consider your options before making this decision — keeping in mind that there are Part D insurance plans available in most areas for around $15/month, or less if your income is fairly low.

Prescription discount cards simply give you a discount on drugs at the time of purchase. In some cases, the discount can be significant, but that’s more likely to be the case when the drug isn’t too expensive to begin with.

These cards are not insurance, and will not count as creditable coverage (in other words, you’ll have to pay a late enrollment penalty if you eventually switch from a discount plan to a Part D plan).

There Are No Dumb Questions!

Sorting out the right Medicare coverage options for your situation can be complicated. Seek out help if you need it, and don’t be afraid to ask lots of questions.

When it comes to prescription drugs, you’ll probably want to make sure that you have either Part D or creditable coverage from an employer or union plan. But you’ll have an opportunity to switch from one plan to another each year, and financial help is available if money is tight.⁷