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 $34 a month (higher-income enrollees may be subject to a surcharge). There is a deductible ($405 in 2018), Medicare pays 75 percent of drug costs between the deductible and an annually set amount ($3,750 in 2018), beneficiaries pay until they reach a total amount ($5,000 in 2018) the beneficiary must pay before hitting the catastrophic coverage level, and Medicare pays 95 percent of drug cost in the catastrophic coverage level.

This “donut hole” structure is being phased out. When enrollees hit the coverage gap, discounts apply to brand name and certain generic drugs (of 65 and 56 percent in 2018). 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 are 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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