If you take prescription drugs and you have noticed higher prices at the checkout counter, it’s not your imagination. An American Association of Retired Persons (AARP) study on retail prices for 260 commonly used medications found that prescription drug costs rose at about 2.9% over the course of 2020—more than double the general rate of inflation over the same period. This trend has been constant since AARP began collecting data in 2006. While many seniors have a portion of their prescription drug costs covered by Medicare and supplemental insurance, retirees have seen their Medicare expenses increase significantly over the past several years. At Crash Proof Retirement, we know that millions of consumers depend on prescription drugs to maintain their quality of life and today, we would like to educate you about Medicare Part D coverage for prescription drugs, and what happens when you find yourself in the donut hole.
The Various Parts of Medicare
Medicare is made up of four parts, identified by the letters A through D, each of which provides different types of coverage. Part A provides for inpatient and hospital care, while Part B provides for outpatient care. Part D, which we’ll be covering in this article, deals with prescription drug prices. Part C plans, also called Medicare Advantage plans, are offered by private companies that are required to follow the rules that are set by Medicare. If you choose to purchase a Medicare Advantage plan, you will receive much of the same coverage from it as you do from Medicare parts A and B; original Medicare will fill in any gaps not included with your Advantage plan. You can also choose from additional benefits like hearing and vision coverage that are not provided by original Medicare. Most, but not all Medicare Advantage plans include the prescription drug coverage that is included in Medicare Part D.
Prescription Drugs: How Much Does Medicare Cover?
While the data supplied by AARP only reports on retail prices for prescription drugs, what Medicare recipients pay can vary. Plan premiums are dependent on which plan (or plans) you select, your income, and other factors, like deductibles can also vary. Some Medicare prescription drug plans do not have a deductible; others have deductibles as high as $445 in 2021. This amount changes every year and will be raised to $480 in 2022, which means consumers will have to spend more out-of-pocket. After exhausting your deductible, your insurance will start picking up some of the costs while you may have to cover copays or co-insurance based on the price of the medication that you need, and the tier level that is assigned to the prescription. Every drug is assigned a tier level and the higher the tier, the higher the price of the drug, and the higher the copay amount will be.
What is the Medicare Donut Hole?
Medicare prescription drug plans contain a coverage gap known as the donut hole. Essentially, the donut hole indicates that a plan beneficiary must first spend up to a certain dollar amount before the Medicare program will step in and cover the bulk of prescription drug costs. Even so, the program will only cover up to $4,130 of Medicare Part D costs. For example, once you have exceeded your deductible through your plan, you will be required to pay no more than 25% of the cost for your plan’s covered brand-name prescription drugs. You must also cover 25% of the dispensing fee. For generic drugs, you will pay 25% of the cost of the drug and Medicare will pay the rest. For 2021, the donut hole started at $4,130 and lasted until $6,550—the starting amount will be increasing to $4,430 in 2022. During this donut hole period, you will continue to pay no more than 25% of the costs for prescription prices, but this was not always the case for program participants. The donut hole, also known as a coverage gap, forced a significant amount of out-of-pocket expenses onto consumers before reaching a catastrophic phase where the programs insurance would reactivate. Currently, once your total out-of-pocket costs reach $6,550 in a single year, you enter this “catastrophic payment stage,” during which your plan will pay most of your prescription drug costs for the rest of the year, while you’ll pay no more than 5% of the costs.
Can You Avoid the Medicare Donut Hole?
If your out-of-pocket prescription drug costs are relatively low, you may be able to avoid entering the donut hole altogether. Unfortunately, with prescription drug prices on the rise, you are more likely now than ever before to fall into Medicare’s coverage gap. Although Medicare supplemental, Medicare Advantage, and Medigap insurance policies may cover some of the shortfalls in Medicare Parts A and B, they do not cover the donut hole in Medicare Part D. If you can demonstrate a financial hardship, you may qualify for the “Extra Help” program, which will cover most of your prescription drug costs regardless of your out-of-pocket expenses. If you find yourself in the Medicare donut hole and cannot demonstrate a financial hardship however, you will be saddled with the costs of paying out-of-pocket until you spend $6,550 in total costs.
Planning for Prescription Drug Costs in Retirement
Without prescription drug coverage through Medicare Part D or a Medicare Advantage plan, you will be paying 100% of the costs of prescription drugs out-of-pocket. When you consider that the average social security benefit amount is about $18,000 annually, you can see how prescription drugs can eat up a significant portion of that paycheck. In addition, Medicare Part B monthly premiums will be going up nearly $260 annually in 2022—the largest increase in the program’s history. Even with the 5.9% social security cost-of-living adjustment for 2022, many retirees will find it difficult to cover their medical expenses.
It is important to have a retirement plan that accounts for the costs that you and your family will experience during your golden years. The retirement phase experts at Crash Proof Retirement can help you craft a retirement strategy that meets your financial needs. Our team of consumer advocates will educate you about the proprietary financial instruments that make up the exclusive Crash Proof Retirement System and how you can utilize them to ensure that you receive adequate income in retirement. Consumers will also learn about how they can protect their health as well as their finances through the benefits of long-term care insurance. Crash Proof Retirement has helped more than 5,000 consumers around the country achieve peace of mind in retirement and now you can too. To schedule your complimentary financial checkup, call Crash Proof Retirement at 1-800-722-9728 or visit https://www.crashproofretirement.com.