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Medicare Part D Plans

What is a drug formulary?

Part D drug plans (either Stand Alone or in a Medicare Advanatge Plan) come with a drug formulary. A drug formulary is a list of prescription drugs, both generic and brand name, used by practitioners to identify drugs that offer the greatest overall value. A committee of independent, actively practicing physicians and pharmacists maintain the formulary. The formulary can change from time to time.

What are the different tiers?

Drugs on a formulary are typically grouped into tiers. The tier that your medication is in determines your portion of the drug cost. A typical drug benefit includes three or four tiers:

  • Tier usually includes generic medications.
  • Tier 2 usually includes preferred brand-name medications.
  • Tier 3 usually includes non-preferred brand-name medications.
  • Tier 4 usually includes specialty and biosimilar medications (Three-tier programs do not have a unique tier for specialty medications)

IMPORTANTThere are big differences in premiums and deductibles, in the range of drugs that plans cover, the co pays they charge and the pharmacies they use. In particular, co pays vary enormously among different plans, even for the same drug.  To determine exact costs and benefits, it is important to carefully compare plans in your area

Part D late enrollment penalty

The late enrollment penalty is an amount added to your Medicare Part D monthly premium. You may owe a late enrollment penalty if, for any continuous period of 63 days or more after your Initial Enrollment Period is over, you go without one of these:

  • A Medicare Prescription Drug Plan (Part D)
  • A Medicare Advantage Plan (Part C) (like an HMO or PPO) or another Medicare health plan that offers Medicare prescription drug coverage
  • Creditable prescription drug coverage

In general, you'll have to pay this penalty for as long as you have a Medicare drug plan.

How much is the Part D penalty?

The cost of the late enrollment penalty depends on how long you went without Part D or creditable prescription drug coverage.

Medicare calculates the penalty by multiplying 1% of the "national base beneficiary premium" ($32.74 in 2020) times the number of full, uncovered months you didn't have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium.

3 ways to avoid Part D penalty

1. Join a Medicare drug plan when you're first eligible. 

2. Don't go 63 days or more in a row without Medicare prescription drug coverage or other creditable drug coverage*.

3. Keep records showing when you had creditable drug coverage, and tell your plan about it.

* means that the coverage is expected to pay on average as much as the standard Medicare prescription drug coverage.


Medicare Part D is insurance for your medication needs. You pay a monthly premium to an insurance carrier for your Part D plan. You then use the carrier’s network of pharmacies to purchase your prescription medications. Instead of paying full price, you will pay a copay or percentage of the drug’s cost. The insurance company will pay the rest.

Part D drug plans are among the most confusing Medicare topics. All too often people join a plan without checking to make sure the formulary includes their medications. Sometimes they also miss that one of their medications has step therapy rules applied. Many beneficiaries also miss their initial enrollment window, so if you need drug coverage, be sure not to miss your window!

Part D drug plans also have changes from year to year.  The plan’s benefits, formulary, pharmacy network, provider network, premium and/or co-payments/co-insurance may change on January 1st of each year. Medicare gives you an annual election period during which you can change your plan if you desire to do so.

There are 4 stages to a Part D drug plan

1 - Annual Deductible

2 - Initial Coverage

In 2020, the allowable Medicare Part D deductible is $435. Plans may charge the full Part D deductible, a partial deductible, or waive the deductible entirely. You will pay the network discounted price for your medications until your plan tallies that you have satisfied the deductible. After that, you enter Initial Coverage.

3 - The Coverage Gap

After you’ve reached the initial coverage limit for the year, you enter the coverage gap. During the gap, you will pay only 25% of the retail cost of your medications. Your gap spending will continue until your total out of pocket drug costs have reached $6350 in 2020.
During this stage, you will pay a co-pay for your medications based on the drug formulary. Each plan separates its medications into tiers.  Each tier has a co-pay amount that you will pay.   The insurance company tracks the spending by both you and the carrier until you have together spent a total of $4020 in 2020.

4 - Catastrophic Coverage

After you’ve reached the end of the coverage gap, your plan will kick in to pay 95% of the costs of your formulary medications for the rest of the year. This feature in Part D drug plans helps you limit your potential spending if you have expensive medications.

When to enroll in Medicare Part D 

There are specific times when you can enroll, dis-enroll, or make changes to your Medicare prescription drug coverage. 

Initial Enrollment Period (IEP)

You can enroll in Medicare Part D coverage during your Initial Enrollment Period (IEP) for Part D, which is the period that you first become eligible. For most people, the IEP for Part D begins three months before you turn 65 years of age, includes the month you turn 65, and ends three months after.

Your Medicare Part D coverage will begin on the first day of the following month that you apply for the plan. If you enroll in one of the three months prior to turning 65 years of age, your Medicare Part D coverage begins on the first day of the month that you turn 65.

Annual Election Period (AEP)

You can enroll into prescription drug coverage during the Annual Election Period (AEP), also called Open Enrollment Period for Medicare Advantage and Medicare prescription drug coverage, which occurs from October 15 to December 7 of every year. During this time, you have the chance to make changes to your current Medicare prescription drug coverage for the following year.

Medicare Advantage Open Enrollment Period (OEP)

If you have prescription drug coverage through a Medicare Advantage Plan, you can choose to leave this plan and go back to Original Medicare during the Medicare Advantage Open Enrollment Period (OEP). If you dis enroll from your Medicare Advantage plan at this time, you will have from January 1 until March 31 to enroll in a stand-alone Medicare Prescription Drug Plan, since Original Medicare doesn’t include prescription coverage.

5-Star Special Election Period (SEP) 

Medicare Advantage plans and Medicare Prescription Drug Plans are rated on a scale of 1 to 5 for overall quality and performance, with a 5-star rating being “excellent.” 

If you are a member of a plan that does not hold a 5-star rating, you can use the 5-star Special Election Period to enroll in a Medicare Advantage with prescription drug coverage or a Medicare Prescription Drug Plan that has been awarded a 5-star rating outside of AEP. You can only use this enrollment period to enroll into a 5-star plan once per calendar year. This period runs from December 8 to November 30 of every year.

Special Election Period (SEP)

Outside of the above times, the only time an individual eligible for Medicare can apply for, change, or opt out of a Medicare Part D Prescription Drug Plan is with a Special Election Period (SEP). Some special situations that may qualify you for an SEP include, but are not limited to:

  • If you move out of your plan’s service area
  • If your plan ends its contract with Medicare
  • If you lose your creditable prescription drug coverage, or your plan changes and is no longer considered creditable
  • If you live or move into an institution, such as a nursing home
  • If you qualify for Extra Help

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