Medicare and Medicaid definitions are filled with jargon that is difficult for agents to understand, let alone explain to their clients. But you could be offering your clients a helping hand by describing Medicare Part D, a federal prescription drug service that could save them hundreds or even thousands of dollars per year on their pharmacy costs.

What is Medicare Part D?
Medicare Part D is a federal program that subsidizes the costs of prescription drugs for Medicare beneficiaries. The program began as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and went into effect in 2006.

Medicare prescription drug coverage is insurance that covers both brand-name and generic prescription drugs at participating pharmacies. A typical person who has Medicare but no prescription drug coverage could see total drug costs drop by about 50 percent with Medicare Part D.

Even if a client is not currently spending a great deal of money out of pocket for medication, the government is encouraging them to join a prescription drug plan (PDP) as soon as they are eligible. Why? Because there is a strong probability that as they get older, their cost for prescription drugs will increase.

When someone becomes eligible for Medicare, they can enroll in a Medicare Part D plan. Their initial enrollment period (the time during which they can first enroll in the plan) begins three months before the month in which they first become eligible, and ends three months afterward. They can enroll any time during this seven-month period without penalty. If they choose not to enroll in a Part D plan during their initial enrollment period, they could be charged the Medicare-imposed late-enrollment penalty (LEP), and may have to pay a higher premium if they decide to join later. The LEP is equal to about 1 percent of the national average premium per month, or 12 percent each year if they are not enrolled for a full year.

For example, if a beneficiary decides to join a plan three years after they initially become eligible, the LEP would increase their premium by 36 percent. This penalty remains for the length of time that they have Medicare Part D coverage, regardless of the plan. If they qualify for extra help, they will not have an LEP. Also, if they have other prescription coverage (also known as creditable coverage) they may not be assessed an LEP. There is no limit on the penalty, so the longer they wait to enroll, the higher the premium they will pay. A person should join when they first become eligible to avoid the late-enrollment penalty.

As a concerned agent, you can advise your Medicare-eligible clients to save money by signing up for Medicare Part D as soon as possible. They will in turn save on prescription drugs, and will not have to pay the monthly penalty.

How does Medicare Part D work?
For the businesses in your client base offering health plans, it is required that they send participants either a Notice of Creditable Coverage or a Notice of Non-Creditable Coverage, whichever is applicable, by Nov. 15 of each year. Employers must also notify the Centers for Medicare and Medicaid Services (CMS) about their plan’s creditable coverage status no later than day 60 of the start of each plan year.

The annual election period (AEP) is Nov. 15 through Dec. 31. During this period, clients may join or change their drug plan for the next year, with an effective date of Jan. 1. If they missed their initial enrollment period, they may enroll during the Annual Election Period.

Medicare beneficiaries who meet certain conditions can enroll in a Part D plan during a special enrollment period (SEP), which is outside of the annual election period. If they have a low-income subsidy or are moving out of their current plan’s service area, they may qualify for the SEP.

First-time enrollees’ coverage begins the month after they enroll in a Part D drug plan. Anyone can join Part D as long as they are enrolled in Medicare Part A and/or Medicare Part B. These drug plans are regulated by CMS. After the first year of enrollment, a participant can change their plan each year between Nov. 15 and Dec. 31.

Premiums can be deducted from a client’s Social Security check, or they can be paid through a bank draft.

A helpful tip for clients
One of the drawbacks of Medicare Part D is that participants are likely to hit a maximum benefit sometime during the year. When this happens, participants are expected to pay out of pocket for the prescription drug expenses they incur for the rest of the year. Many pharmacies now have a $4 generic prescription drug program, where customers only pay $4 for the most common generic drugs. Agents should recommend their clients use these programs whenever possible. By paying cash for those prescriptions instead of using Medicare Part D, clients can extend the life of their Part D coverage. The participant could possibly ride out the full year without hitting the maximum amount and then start fresh at the beginning of the new year.

Steve Zielinski is an associate with the FranaGroup. He can be reached at szielinski@thefranagroup.com.