Lesson 4: What is a PDP?

Hello and welcome to our last lesson, Understanding Prescription Drug Plans and How they Work. 

Medicare Part D, the prescription drug benefit, is the part of Medicare that covers most outpatient prescription drugs. Part D is offered through private companies, either as a standalone plan for those enrolled in Original Medicare or as a set of benefits included with Medicare Part C Medicare Advantage Plans. 

Medicare Part D Prescription Drug Plans are designed to give Medicare beneficiaries coverage for medications, as Medicare does not cover prescription drugs. To be eligible for Part D Prescription Drug Plans, beneficiaries must be Medicare eligible, enrolled in Medicare Part A and or Medicare Part B, and reside in the planned service area. 

The most common times a beneficiary will enroll into a Part D Prescription Drug Plan is during their Initial Enrollment Period when they first become Medicare eligible, or during the Annual Enrollment Period each year from October 15 through December 7, and during the Open Enrollment Period from January 1 to March 31. Any time outside those three enrollment periods, the beneficiary would have to qualify for a Special Enrollment Period.

Individuals who qualify for low income subsidy, LIS, or have dual eligibility will have additional Special Enrollment Periods throughout the year. Although Medicare does not cover prescription drugs, it is a requirement that all Medicare beneficiaries have credible drug coverage. 

Beneficiaries who do not enroll into a Part D Prescription Drug Plan when they are first eligible to do so will be assessed a late enrollment penalty. The Part D Prescription Drug Plan late penalty is 1% per month of the national average for each month the beneficiary could have had coverage but did not. For 2023. The estimated national average monthly Medicare Part D Prescription Drug Plan premium is $32.74, so the penalty would be 1% of the $32.74, for each month the individual went without credible prescription drug coverage. 

Credible coverage is defined as coverage that is at least as good as the Medicare standard benefit model. 

Although Part D Drug Plan are offered by private insurance carriers, each plan must meet federal guidelines. All drug plans have four stages, and Medicare sets these limits for each of the three stages during the year. Part D Prescription Drug Plans defined benefit has several phases, including a deductible, an initial coverage phase, a coverage gap phase, and a catastrophic coverage phase. 

The first stage is the annual deductible, where the individual pays the full cost of their prescriptions up to the deductible. For 2023 the Part D deductible is up to $505. Deductibles vary between Medicare drug plans, but no Medicare drug plan may have a deductible of more than $505. 

The second stage, the initial coverage, involves beneficiaries paying copays based on the tier of their medication. 

The third stage is the coverage gap. Not everyone will enter the coverage gap, which is also referred to as the donut hole. In the coverage gap, the plan is temporarily limited in how much it can pay for your drugs. If you do enter the gap, the beneficiary will pay 25% of the plan’s cost for covered brand name drugs and 25% of the plan’s cost for covered generic drugs. 

The fourth stage is the catastrophic phase. This begins when your out-of-pocket costs reach $7,400 on covered drugs. After your out-of-pocket cost totals $7,400, you exit the gap and reach the catastrophic coverage. In the catastrophic stage, you will pay a low coinsurance amount, which is set by Medicare for all of your covered prescription drugs. That means the plan and the government pay the rest, about 90%, of the cost. You will remain in this phase until the end of the plan year. 

Beneficiaries with low incomes and modest assets are eligible for assistance or Extra Help with Part D plan premiums and cost sharing through the low Income program, or LIS. Medicare Part D Prescription Drug Plans have a formulary that is developed by doctors, pharmacists and other experts. Formularies can vary from one plan to the next and must contain at least two drugs in each therapeutic category. Formularies must also include generic and brand name medications. Exceptions can be requested by a physician if a required medication is not on the formulary. 

Formularies can utilize medication management tools such as step therapy and prior authorization requirements, and can be changed throughout the year in certain situations. 

Some Prescription Drug Plans have restrictions on certain medications. These can include prior authorization where your doctor may need approval from your plan before prescribing some medications. This may be because a drug is only approved for certain conditions or to ensure that the drug is medically necessary. 

Step therapy, for certain conditions, is where a plan may require the beneficiary to try a cheaper drug on their formulary. If the cheaper medication doesn’t work for their condition or produces bad side effects, they may be able to move up a step to a more expensive drug.

Sometimes there could be quantity limits where plans may limit the amount of medication prescribed over a period of time. This is done for safety reasons, or to cut down on cost. Prescription Drug Plans have tiers where medications are grouped together by the amount of cost sharing. 

Tier one is for generic drugs. This tier is the least expensive drug your plan covers, including generic drugs and select brand names. 

Tier two is for preferred brand name drugs. This is for brand name drugs that have been proven to be the most effective in their class. 

Tier three is non preferred brand name drugs. These are drugs considered non preferred, which are brand names that are not the most effective as well as preferred specialty drugs. 

Tier four is for high, high cost or specialty drugs. These are the most expensive drugs because they are classified as brand name, specialty and not preferred. 

Now that we have wrapped up Medicare Part D Prescription Drug Plans, take a short quiz to test your knowledge before moving on to the final exam to earn your certificate. Congratulations.