While a recent report by the Center for Medicare and Medicaid Services (CMS) shows that Part D premiums will increase by an average of 5 percent in 2014, many retirees will actually be able to save money on prescription drugs in the New Year.
Due to changes mandated by the Affordable Care Act, individual responsibilities for brand-name and generic drugs will gradually reduce over the next several years, the report states. Annual changes to specific Part D plans will also allow savvy users to keep costs low as their prescriptions change. To take advantage of all these savings, however, seniors will need to pay close and continual attention to their needs, options and total costs.
One of the ACA's greatest effects on Part D is its gradual closing of the “doughnut hole”— the coverage lapse that occurs when users exceed their monthly drug benefits. In 2013, anyone who exceeded $2970 in drug costs was then responsible for 47.5 percent of their brand-name drugs and 79 percent of their generics. According to CMS, in 2014, brand-name responsibilities will remain the same, while responsibilities for generics will be reduced to 72 percent. By 2020, Medicare users will only have to pay 25 percent for both brand-name and generic drugs once they exceed the monthly limit. Planner should note, however, that the starting point for the coverage gap is subject to change, and that it will be lowered to $2850 in 2014.
Despite the expected increase in monthly premiums, lower deductibles and co-pays—as well as access to different pharmacies—may help many seniors realize net reductions in their drug-related costs. “You might pay a higher premium, but you'll pay less for drugs over time,” said Sarah O-Leary, healthcare advocate and founder of Exhale Health. “What you really want to look at is your estimated total out-of-pocket costs for each year.”
Even for users who never come close to reaching the now-shrinking doughnut hole, Medicare's various plans offer savings that change from year to year. “One plan might charge 20 percent coinsurance for a drug, and that same drug might be 15 percent with another plan,” O'Leary said. Quite a few Part D plans also now feature PPO-esque pharmacy networks, and one plan may include discounted drugs that other plans do not.
Part D has been notoriously difficult to navigate in the past, but it's become far easier for proactive advisers to find the cheapest plans for their clients. “It's good to go on Medicare.gov and plug in the prescriptions you're going to need,” O'Leary said. “Their plan finder is not terribly difficult, and for a government site it's amazing.” Users can adjust settings to make sure that all their drugs are covered, and that the cheapest and closest pharmacies are included in their networks. They can also compare costs across similar plans and select the combinations of premium, copays, deductibles and list prices that minimizes overall costs.
Advisers should also understand that these plans change yearly, and that even when their clients' prescriptions haven't changed, they may be able to save money by switching. Enrollment opens every year from October 15th to December 7th, and any user can change their policies during that time. “People using Part D should treat it like a health plan checkup,” O'Leary said. “Every year they should look at the drugs they're taking, go to Medicare.gov, put those drugs in the finder and have a look to see if their plan is still the best for them. If you look and change, you will typically save more money.”
Finally, whether they currently need prescription drugs or not, just about every new Medicare enrollee should go ahead and sign up for Part D. Those who sign up late face a penalty equal to 1 percent of the national base beneficiary premium—$32.42 in 2014—multiplied by the number of months they spent without adequate drug coverage. This penalty is permanent, and for people who live well past the age of 65, it will usually result in a higher total premium payment over the course of retirement.