Eight Things You Need to Know About Medicare Part D Prescription Coverage

Today’s installment discusses prescription drug coverage under Medicare Plan D.

Medicare Part D covers most outpatient prescription drug costs.  This is a separate policy that must be purchased through an insurance carrier in addition to standard Medicare parts A and B and any Medigap coverage.

In 2023, the out-of-pocket threshold for Medicare Part D is $7,400. Starting January 1, 2024, this threshold will increase to $8,000. Once out-of-pocket spending reaches this threshold, you automatically enter the catastrophic coverage phase where your cost-sharing is significantly reduced.

What counts toward your out-of-pocket spending? 

True Out of Pocket costs (TrOOP)

TrOOP or your total out-of-pocket cost is the total amount you will spend in a year on your formulary drugs before exiting the Coverage Gap (or Donut Hole) and entering the Catastrophic Coverage of your Medicare Part D prescription drug plan.

In 2024, the Inflation Reduction Act (IRA) of 2022 eliminates beneficiary cost-sharing in the Catastrophic Coverage phase.

In 2024, a Medicare Part D plan member will not have any out-of-pocket costs after reaching the plan’s total out-of-pocket threshold (TrOOP) of $8,000.  Therefore, 2024 TrOOP will become the prescription drug maximum out-of-pocket spending threshold.

TrOOP includes, not only your actual out-of-pocket costs for formulary drugs, but also the drug costs that someone may have incurred on your behalf (for example, the pharmaceutical manufacturers who cover 70% of your brand-name Donut Hole discount).

The Centers for Medicare and Medicaid Services (CMS) explains “True out-of-pocket (TrOOP) costs are the expenses that count toward a person’s Medicare drug plan out-of-pocket threshold.  TrOOP costs determine when a person’s catastrophic coverage portion of their Medicare Part D prescription drug plan will begin.”

Your drug purchases count toward TrOOP when they meet these conditions:

• Your generic or brand-name drugs are on your Medicare Part D prescription drug plan’s formulary or drug list OR
• Your prescriptions were not on your plan’s formulary, but you are allowed to count the coverage costs toward true out-of-pocket costs because you requested a coverage determination (formulary exception) that was granted by your Medicare plan and your non-formulary drugs are now covered by your plan – AND
• Your medications were purchased at one of your Medicare plan’s network pharmacies.
• Or your Medications were purchased at an out-of-network pharmacy in accordance with the plan’s out-of-network policy (for instance, this was an emergency fill, and no network pharmacy was available, and you submitted the prescription to your Medicare Part D plan).

What payments count toward your TrOOP?

The annual initial deductible, which is the amount a person pays for their Medicare Part D covered prescriptions before their Medicare Part D drug plan begins to pay.  Most Medicare Part D plans have an initial deductible and begin with coverage after the deductible is met.  So, if your Medicare Part D plan has an initial deductible, you pay 100% of the cost of your medications — up to your initial deductible limit — and then your Medicare Part D plan begins to pay along with your co-insurance or co-payment.  What you pay during the initial deductible phase counts toward your TrOOP.

Your formulary drug cost-sharing, that is, the amount a person pays for each Medicare Part D plan covered prescription drug after their drug plan begins to pay (i.e., your co-payments or coinsurance).  So, if you have a $30 co-payment for a particular medication that is covered by your Part D prescription drug plan, you get TrOOP credit for the $30.  If someone else, like a friend or family member, makes the payment for you (say, $30 in this example), then this amount is also counted toward TrOOP.  For example: if your medication has a retail cost of $100, and your coverage cost is $30, your Medicare plan pays the other $70, and you get the $30 counted toward TrOOP.

Any payments a person makes during their plan’s coverage gap also counts toward TrOOP.  This includes what you pay and what others pay on your behalf (for instance, the brand-name drug manufacturer is paying 70% of your brand-name drug cost while you are in the Donut Hole and this 70% of retail cost is counted toward your TrOOP or Donut Hole exit point).  For example: if you purchase a formulary brand-name Medicare Part D drug in the Coverage Gap or Donut Hole – you will get the Donut Hole discount of 75% (you pay 25%) and get credit for 95% of the retail cost toward TrOOP.  Using the example from above, if your brand-name formulary drug has a negotiated retail cost of $100, you will pay $25 (25% of the retail price) and $70 (or 70%) will be paid by the Pharmaceutical Industry (the additional 5% will be paid by your Medicare Part D plan but does not count toward TrOOP). So, you pay $25, but you will receive $95 (95%) credit toward your TrOOP.

Any payments for drugs made by any of the following programs or organizations on your behalf.

Any money a person enrolled in the Medicare drug plan uses from their Medical Savings Account (MSA), Health Savings Account (HSA), or Flexible Spending Account (FSA).

What does not count toward TrOOP?

The cost-sharing portion paid by a Medicare drug plan (for example, for a $100 medication, you pay $20, and your plan pays $80, only the $20 counts toward your TrOOP),

Your monthly Medicare plan premiums,

Drugs purchased outside the United States and its territories (for instance, drugs purchased in Mexico),

Drugs not covered on the Medicare Part D plan formulary or drug list,

Drugs covered by the plan that are excluded by Medicare law – for instance, drugs for hair growth that are covered by your plan as a supplemental or bonus drug do not count toward TrOOP (see Excluded Medicare Part Drugs),

Over-the-counter drugs or vitamins (even if they are required by your Medicare Part D plan as part of Step Therapy),

Finally, CMS notes: Payments don’t count toward a person’s TrOOP costs if they’re made by (or reimbursed to the person enrolled in a Medicare drug plan) by any of the following:

Group health plans such as the Federal Employees Health Benefit Program (FEHBP) or employer or union retiree coverage

Government-funded health programs such as Medicaid, TRICARE, Workers’ Compensation, the Department of Veterans Affairs (VA), Federally Qualified Health Centers (FQHCs), Rural Health Clinics (RHCs), the Children’s Health Insurance Program (CHIP), and black lung benefits

Other third-party groups with a legal obligation to pay for the person’s drug costs

Patient Assistance Programs (PAPs) operating outside the Part D benefit

Other types of insurance

Please note:  You must let your Medicare drug plan know if you are receiving coverage from one or more of the third parties listed above that pay a part of your out-of-pocket costs for prescription drugs.

TrOOP costs include:

The yearly deductible, coinsurance, and copayments

The cost of prescription drugs during the coverage gap

Payments made by other insurance

It’s important to note that the payments must be for covered drugs and made by the person or on behalf of the person. The TrOOP does not include the drug plan’s premium, pharmacy dispensing fee, and costs for non-covered drugs.

The Medicare drug plan keeps track of these costs and provides an “Explanation of Benefits” (EOB) each month, which shows the accumulated TrOOP costs to date. This helps members keep track of their spending and know when they are close to entering the catastrophic coverage phase.

Enrolling in Medicare Part D

Online: You can enroll online through the Medicare Plan Finder on the official Medicare website at www.medicare.gov

Phone: You can call the plan you want to enroll in directly. Alternatively, you can call Medicare at 1-800-MEDICARE.

Paper Application: You can complete a paper enrollment form.

Licensed Insurance Agent: You can also enroll over the phone with a licensed agent or register directly with the carrier you choose. Some people may find it helpful to enroll through a licensed insurance agent.

Before you enroll, it’s important to check that your prescription drugs are covered under the plan’s formulary and understand the costs associated with the plan. Each plan can vary in cost and specific drugs covered.

Remember, to join a Medicare drug plan, you must be a United States citizen or lawfully present in the United States. If you decide not to enroll in Medicare Part D when you’re first eligible, and you don’t have other creditable prescription drug coverage (like drug coverage from an employer or union) or get Extra Help, you’ll likely pay a late enrollment penalty if you join a plan later.

Here are some steps you can follow when looking at Medicare Part D plans:

Check the Formulary: When you are prescribed a new drug, look it up in the formulary to make sure it’s covered. Find out what tier it’s on and see if your drug has any special requirements.

Understand the Coverage: Medicare Part D covers most outpatient prescription drugs. however, some drugs may be covered under Medicare Part B if they are administered at a doctor’s office or in a hospital outpatient setting, as well as certain other drugs, such as transplant drugs under certain circumstances.

Contact Your Plan: If you’re unable to find your drug on the formulary or if you have any questions about coverage, contact your plan directly. They can provide the most accurate and up-to-date information.

Each Medicare Part D plan has its own formulary which can change from year to year. It’s important to review your coverage annually during the open enrollment period.

Vaccines

In 2024, Medicare covers several vaccines at no cost to beneficiaries, meaning without having to pay deductibles or copayments. Here are the details:

Medicare Part B: This part of Medicare covers several vaccines as a free benefit. This includes vaccines for influenza (flu), pneumococcal (pneumonia), and hepatitis B for those at a higher risk of illness. Medicare continues to cover COVID-19 vaccines, even though the public health emergency ended on May 11, 2023.

Medicare Part D: Vaccines covered under Medicare prescription drug plans (Part D) are free in 2023. This means there are no more co-payments—or deductibles to meet—for any vaccinations recommended by the Advisory Committee on Immunization Practices (ACIP). This list includes the vaccines for shingles and Tdap (tetanus, diphtheria, and pertussis, which is also known as whooping cough).

Medicare also covers the Respiratory Syncytial Virus (RSV) vaccine. The RSV vaccine is covered under Medicare Part D if it’s recommended for you by ACIP. The RSV vaccine is recommended for adults over the age of 60.  Your pharmacy should not charge you a copay or deductible to get the RSV vaccine if you have Medicare Part D.

Changes to Medicare in 2025:

Medicare Part D: Out-of-pocket drug spending will be capped at $2,000. This cap is expected to result in annual savings of about $1,300 for those who take only brand-name drugs.

Elimination of the Coverage Gap: The coverage gap phase, also known as the “donut hole,” will be eliminated. This means Part D enrollees will no longer face a sudden increase in their cost sharing when moving from the initial coverage phase.

Shifting Shares of Costs: There will be a shift in the distribution of costs in 2025. Part D plans and manufacturers will face changes to their share of total drug costs paid in the initial coverage phase.

As always, do your own research into what plan is best for you. The information above is what I have gleaned from several hours of scouring the internet. My next installment in this series will be about financial help for medical and drug costs for low-income people on Medicare.