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Will Medicare Help Pay for My Prescription Drugs?

In the past, Medicare provided very limited coverage for prescription drugs. However, following a period of marked increases in prescription drug costs that saw price increases of up to 12 and 18 percent in some years according to data from the Kaiser Family Foundations--far outstripping the rate of inflation--Congress sought to provide some relief for seniors. As a result, President George W. Bush signed Medicare Part D into law with the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). Prescription drug coverage commenced in 2006.

  1. Eligibility and Participation

    • According to the Department of Health and Human Resources, Medicare Part D is available to anyone covered under Medicare Part A or enrolled in Medicare Part B. Enrollees can choose to participate by joining a Medicare Advantage Plan under Medicare Part C, thus building prescription drug coverage into a larger array of benefits. Or, they can enroll in a plan that covers prescription drugs only, called a PDP, or Prescription Drug Plan. Most beneficiaries must actually actively enroll in order to participate.

    Benefits

    • There is no formal formulary that lists precisely what drugs are included under Part D, although the companies administering plans do produce their own formularies. Medicare Part D rules exclude any drugs not screened and approved by the Food and Drug Administration (FDA), nor does it cover drugs used for off-label purposes. Part D does not cover any drugs not approved for sale in the United States and drugs covered under Medicare Part A or Part B.

    Costs

    • The Medicare Part D Standard Benefit plan has a deductible of $310 as of 2010, which means that you will pay the first $310 of any prescription drug coverage in the first year. After that, Part D's standard plan covers 75 percent of prescription drug costs, up to a limit of $2,830. You must pay the full costs of prescription drugs after that until your total out-of-pocket costs reach $4,550. After that point, Medicare picks up 95 percent of prescription drug costs, or requires you to pay a copay of $6.30 for brand-name drugs and $2.50 for generic drugs, whichever is greater, according to the Center for Medicare and Medicaid. The plan "resets" on January 1 of each year.

    PDP Premiums

    • Expect the average premium for PDP coverage to be about $38.94 per month, depending on the plan you select--an 11 percent increase over the prior year and a 50 percent increase over Part D's commencement in 2006, according to the Social Security Administration Board of Trustees. Enrollees with income below 150 percent of the poverty line are eligible for subsidies.

    Outlook

    • Although both Medicare and Social Security have a number of fiscal challenges to overcome, the Social Security Administration believes that Part D will remain adequately funded, since current law automatically provides the needed financing each year to cover plan costs. However, the Medicare trustees project that supplemental medical insurance costs will increase from 1.9 percent of gross domestic product (GDP) in 2009 to 3.5 percent of GDP in 2040. The shortfall will have to be made up by a corresponding increase in contributions from the covered individuals and by the taxpayer at large. Drug coverage costs, then, will continue to increase.

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