Medicare Prescription Drug Benefit

The Medicare prescription drug program, called Medicare Part D, is a voluntary program offering a range of plans with premiums averaging about $33 a month in 2019 (higher-income enrollees may be subject to a surcharge). There is a deductible ($415 in 2019), Medicare pays 75 percent of drug costs above the deductible up to a threshold ($3,820 in 2019), above that threshold the enrollee pays all costs until the enrollee has paid a total including the deductible ($5,100 in 2019); after that, Medicare pays 95 percent of drug costs. When enrollees hit the coverage gap, discounts apply to brand name and certain generic drugs (of 70 and 63 percent in 2019). Even though a discount applies, the full cost of a brand-name drug, although not of a generic drug, counts toward the required enrollee out of pocket payment. The discounts have been increasing each year so that in 2020, the 75 percent Medicare payment will apply up to the point where 95 percent coverage begins.

The cost sharing amounts are indexed for inflation. Lower-income beneficiaries may qualify for no cost sharing other than a small co-pay per prescription.

Coverage includes prescription drugs, biological products, insulin and certain vaccines. Beneficiaries may choose either “standard” coverage offered by a prescription drug plan or as part of a Medicare Advantage plan. Beneficiaries also may receive drug coverage through an employment-based retiree plan.

However, there is little incentive for a federal retiree with FEHB coverage to join the Medicare prescription drug program. Prescription drug costs already are factored into FEHB premiums, and voluntarily enrolling in a Medicare drug plan could simply amount to paying a second time for coverage they already have. In addition, the Medicare drug benefit is generally considered inferior to what FEHB provides. There could be situations in which it makes sense to take Part D, though, particularly if the individual would be eligible for the lower rates available to lower-income people.

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