When you’re eligible for Medicare you’re required to enroll in a Medicare Part D Prescription coverage. If you work beyond the age of eligibility & your Employer Group Health Plan (EGHP) offers you “CREDITABLE COVERAGE”, you may delay enrollment in Medicare Part B (medical coverage) and Part D (prescription drug coverage) without worrying about a future Late Enrollment Penalty (LEP). The Term “Creditable Coverage” means the prescription drug benefit your Group Health Plan is at least as good as what Medicare offers. Employers are required to send you a letter of creditable coverage, annually. Keep these, you’ll need them as proof you had such coverage when you do finally decide to retire and enroll in Medicare B & D. Due to the changes in Medicare Part D in 2025 it will be very important for seniors working past age 65 to ensure their employer group health plan offers CREDITABLE COVERAGE to avoid a future Late Enrollment Penalty.
The Medicare Part D Prescription Drug Plan is standardized by the Federal Government. Each plan follows the same structure or framework. There are 4 phases: The deductible phase; the Initial Coverage Phase; and Catastrophic. How you are impacted by each of these phases depends on what prescriptions you take and which plan you enroll in.
Stand-alone plans offer ONLY prescription drug benefits. Medicare Advantage Plans, also called Part C, generally include a Part D plan. Some Part C plans don’t offer drug coverage because they’re designed for Veterans who can get their prescriptions from the VA, which is deemed, “creditable coverage”.
Part D prescription drug coverage, whether stand-alone or included in a Medicare Advantage Plan, are calendar-year plans. Each carrier determines which drugs will be covered by their plan’s formulary, (the list of covered drugs for that plan). Each drug listed on the formulary is assigned to a TIER. This is a pricing strategy. Usually, there are 5 tiers on a drug plan formulary. Some plans may have 6. As a rule of thumb, the lower the tier, the lower the cost. Tier 6, is an exception as this tier is reserved for commonly prescribed maintenance drugs, which are usually inexpensive. Here are the descriptions for each tier:
Tier 1: preferred generic drugs
Tier 2: non-preferred generic drugs
Tier 3: preferred brand drugs & certain select insulins
Tier 4: non-preferred brand drugs
Tier 5: Specialty drugs
Tier 6 (lower cost/commonly prescribed maintenance drugs such as select insulins). Not every formulary will have a Tier 6
If you take drugs subject to your plan’s deductible phase you’ll pay the full retail cost of those drugs, as assigned by the plan, until you meet the deductible.
Initial Coverage Phase: After satisfying your deductible, you’ll pay the assigned co-pay or coinsurance for your prescriptions. You will receive an EOB statement showing the prescriptions you ordered, their assigned retail value, what you paid and what the plan paid. For example, if you are taking a drug the plan says is worth $100 but you were charged a $5 copay then the plan would consider they contributed the difference between your copay and the retail value they’d assigned to the drug. In this example, $95. Your $5 + their $95 is added together each month. This formula applies to each of the prescriptions you take that are listed on the plan’s formulary (list of covered drugs). If at any time in 2024, what you pay in copays or coinsurance plus what the plan contributes equals $2000, you enter the final phase, Catastrophic
Catastrophic Phase: If you enter this final phase, you will no longer be charged copays or coinsurance for your prescriptions. Your costs at this point will be $0 until the end of the calendar year as long as the prescriptions you take are on your plan’s formulary (list of covered drugs)