What Medicare Part D Covers

Part D, Medicare's program for covering prescription drugs, is a complicated benefit that resembles no other type of drug coverage ever devised. That's why understanding how it works before plunging in is really important. Following is information on the peculiarities of Part D coverage — how it can fluctuate during the year, how different plans have their own lists of drugs they cover, and which drugs are excluded from Part D and which must be covered.

Drug coverage that can vary throughout the year

It sounds crazy, but you may find yourself paying different amounts for the same medicines at different times of the year. That's because Part D drug coverage is generally divided into four phases over the course of a calendar year. Whether you encounter only one phase or two, three, or all four depends mainly on the cost of the prescription drugs you take during the year — unless you qualify for Extra Help. Here's the breakdown:

• Phase 1, the annual deductible: If your Part D drug plan has a deductible, you must pay full price for your drugs until the cost reaches a limit set by law ($435 in 2020) and drug coverage actually begins. Many plans don't charge deductibles or charge less than the limit. But if your plan has a deductible, this period begins on January 1 or whenever you start using your Medicare drug coverage.
• Phase 2, the initial coverage period: This stage begins when you've met any plan deductible. Otherwise, it begins on January 1 or whenever you start using Medicare drug coverage. You then pay the co-payments required by your plan for each prescription, and the plan pays the rest. This period ends when the total cost of your drugs — what you've paid plus what your plan has paid — reaches a certain dollar limit set in law ($4,020 in 2020).
• Phase 3, the coverage gap: This gap — often called the doughnut hole — begins when you hit the limit of initial coverage and ends if and when the amount you've spent out-of-pocket on drugs from the beginning of the year hits another dollar limit set in law ($6,350 in 2020).

Until 2011, you would've had to pay 100 percent of the cost of your drugs in the gap. Now you pay a lot less because under the Affordable Care Act, the gap is gradually shrinking. In 2020, your plan will cover at least 5 percent of the cost of covered brand-name drugs, plus you’ll get a discount of 70 percent on brand-name drugs from the manufacturer, so the amount you will pay is 25 percent of the cost. Also, as of 2020, Medicare will cover 75 percent of the price for generic drugs for those in the coverage gap, so in 2020, you will pay only 25 percent for both generic and brand-name drugs. These discounts come partly from the drug manufacturers and partly from the government.

What’s more, the 50 percent that the drug manufacturers contribute to the discounts on brand-name drugs counts toward the dollar out-of-pocket limit that gets you out of the gap; that is, you get credit for having paid full price even though you’re receiving the discount. But for any discounts funded by the government, such as those for all generic drugs and anything above 50 percent for brands, only what you pay counts toward getting out of the gap.

• Phase 4, catastrophic coverage: If your drug costs are high enough to take you through the gap, coverage kicks in again. At this point, your share of the costs drops sharply. You pay no more than 5 percent of the price of each prescription. Catastrophic coverage ends on December 31. The next day, January 1, you return to Phase 1 (or Phase 2 if your plan has no deductible), and the whole cycle starts over again.

This figure is a quick way of looking at the same cycle of coverage.

The following figure shows this information in a different way. Here, you can see examples of brand-name drugs costing (for the sake of simplicity) $100, $200, or $300 per one-month prescription — and what you'd pay for them in each phase of coverage. These examples assume co-pays during the initial coverage period of $45 for each prescription, although co-pays vary widely among Part D plans.

All about formularies

Formulary is jargon that becomes familiar when you're in Part D because it directly affects what you pay. A formulary is simply the list of drugs that each Part D plan decides to cover. (No national formulary exists.) Here's why it's important that your drugs are included on your plan's formulary:

• You usually have to pay the whole tab for drugs that aren't covered. Your plan pays its share of the cost during the initial and catastrophic coverage phases (Phases 2 and 4). But for any drug the plan doesn't cover, you pay full price in all phases of coverage unless you win an exception from the plan. The difference in your out-of-pocket expenses between a covered and uncovered drug can be hundreds of dollars a month.
• You don't get doughnut hole credit for uncovered drugs. If you fall into the doughnut hole (Phase 3), the cost of any drugs not covered by your plan doesn't count toward the out-of-pocket limit that gets you out of the gap and triggers low-cost catastrophic coverage.
• You're more likely to properly fill and take your medicines. You need the meds you're prescribed for the sake of your health. If you get coverage for them and don't have to pay full price, you're much more likely to fill all your prescriptions and not skip doses.

No Part D plan covers all prescription drugs, and the number covered varies greatly among plans. In 2019, 63 percent of drugs were covered by Medicare Part D plans, according to an analysis by the health research group Avalere Health. So, the goal is to choose a plan that covers all, or at least most, of the specific drugs you take.

The drugs Part D plans must cover

Although Medicare law doesn't require Part D plans to cover every drug, it does insist that each plan covers at least two drugs in each class of medications. A class means all the similar drugs that are used to treat the same medical condition. Many plans cover more than two in each class. But every plan must cover "all or substantially all" drugs in each of the following six classes:

• Anticancer drugs (used to halt or slow the growth of cancers)
• Anticonvulsants (used mainly to prevent epileptic seizures)
• Antidepressants (used to counteract depression and anxiety disorders)
• Antipsychotics (used to treat mental illnesses such as schizophrenia, mania, bipolar disorder, and other delusional conditions)
• HIV/AIDS drugs (used to block or slow HIV infection and treat symptoms and side effects)
• Immunosuppressants (used to prevent rejection of transplanted organs and tissues and treat immune system disorders and some inflammatory diseases)

Medicare requires every Part D plan to cover pretty much all drugs in these categories because of the clinical problems that can occur when patients abruptly stop taking such medications or switch to others.

The drugs Medicare doesn't pay for

By law, Medicare doesn't pay for certain kinds of drugs. Part D plans aren't prohibited from covering them; Medicare just doesn't reimburse their cost. So although a few plans may cover some of these drugs, most plans don't cover any. The types of excluded drugs are

• Medicines sold over the counter (not needing a doctor's prescription)
• Drugs used for anorexia, weight loss, or weight gain
• Drugs used for cosmetic reasons and hair growth
• Drugs used to promote fertility
• Drugs used to treat sexual or erectile dysfunction
• Medicines used to treat cough or cold symptoms
• Prescription vitamins and mineral products

Sometimes Medicare will pay for medications in these categories if they're used for a "medically acceptable" purpose — for example, cough medicines when prescribed by a doctor to alleviate medical conditions such as asthma, drugs for impotency when prescribed to treat different medical conditions that affect veins and arteries, or antismoking drugs if prescribed by a doctor rather than bought over the counter.

Until 2013, Medicare also excluded barbiturates (used for anxiety and seizures) and benzodiazepines (used for anxiety and sleeping problems) because these drugs are often abused. But the ban has now been lifted wholly on both types of drugs, allowing Part D plans to cover them for any medically accepted indication.

When drugs are covered by Part A, Part B, or Part D

As confusing as it sounds, some medications may be covered not only under Medicare Part D but also under Part A or Part B. Sometimes an identical drug may be covered by all three but charged under one or another according to different circumstances. That's because certain drugs were covered under A or B before D came into existence, and that practice continued. Here's the general rule of thumb:

• Part A covers drugs administered when you're a patient in the hospital or a skilled nursing facility.
• Part B covers drugs administered in a doctor's office (such as injected chemotherapy drugs), hospital outpatient departments, and, in some circumstances, by a hospice or home health-care professional.
• Part D covers outpatient drugs that you administer to yourself, a caregiver administers to you at your home, or you receive if you live in a nursing home. (These drugs are usually pills but also include self-injected insulin for diabetes, for example.)

These general rules are more complicated in some situations. For example, if your organ transplant was covered by Medicare, the immunosuppressant drugs you need afterward are covered by Part B. But if your transplant surgery wasn't covered by Medicare (perhaps because you had it before joining the program), the drugs are covered under Part D.

Part D doesn't pay for drugs covered by Parts A or B. So if any of your meds are in question, your Part D plan may require information from you and your doctor — usually concerning any related medical treatment, such as surgery — before covering them. For this reason, Part D plans often place a prior authorization restriction on such drugs to determine whether Part A, B, or D should cover them. Your doctor may be able to settle this matter over the phone or may help you file a speedy exception request. Either way, your doctor needs to explain why a prior authorization shouldn't apply in this case.