Medicare Rx plan changes set a trap for the unwary

Many insurance companies offering prescription drug plans under Medicare Part D are implementing cost-cutting measures for 2016. What does that mean for you?

"If you don't pay attention, you could be paying out hundreds or even thousands of dollars more next year," said Diane Omdahl, president of Sixty-Five Incorporated, a firm that helps seniors select health care plans under Medicare. "Don't automatically re-enroll in the same plan you had for 2015 -- you'll want to see how your plan will pay for your specific drugs in 2016."

During Medicare's open enrollment, which starts on Oct. 15 and ends Dec. 7, you can make changes to your Part D prescription drug plan. If you're taking prescription drugs on an ongoing basis to maintain your health, you'll want to understand your plan's "formulary," which identifies the reimbursement schedule for specific drugs. You can find that formulary on your insurer's website.

Prescription drug plans assign drugs to a tier: the lower the tier, the higher the reimbursement will be (and the lower your out-of-pocket costs). Generic drugs are assigned the lowest tiers, while more expensive, brand-name drugs are assigned to higher levels.

The lower tiers typically have fixed-dollar co-payments, while the higher tiers may have co-insurance instead. More expensive brand-name drugs may have higher co-insurance requirements, and some drug plans may not even cover certain drugs in that category.

To cut costs, some drug plans move certain drugs from a lower tier level to a higher tier level, which reduces insurance company reimbursements. That's one good reasion you want to check your specific drugs against your plan's formulary to see how much you might be paying in 2016 for your medications.

Most people have already received notices of premium increases and plan changes for 2016. Take the time to read the fine print. In addition to reviewing your formulary, you'll want to see if your co-payments and co-insurance requirements are increasing as well.

But don't automatically elect the plan with the lowest premium because it might have higher co-payments and co-insurance, or it may have assigned your drugs to a high tier level.

You'll also want to understand whether your drug plan pays for your medications if you fall into the coverage gap, which most prescription drug plans have (a.k.a. the "Medicare donut hole"). Here's how it works: For 2016, once you and your plan have paid $3,310 for your drugs, including deductibles, you're in the coverage gap and are responsible for paying 100 percent of the additional costs for drugs until you reach the catastrophic limit.

If you're in the coverage gap, you can receive a 42-percent discount on the price of generic drugs and a 55-percent discount on brand-name drugs, provided you follow the procedures your plan sets. If you think you'll fall into the coverage gap, check with your plan to see how the discounts will be applied to your drugs.

Once total prescription drug costs reach $4,850 in 2016, you're out of the coverage gap and will only pay a small co-insurance or co-payment amount. Some plans will pay for drugs while you're in the coverage gap, but usually at a price -- higher premiums.

Here's another feature to look for: Some drug plans may offer higher reimbursements if you use a network pharmacy. So, find out if your favorite pharmacy is a preferred provider.

Checking into your prescription drug plan might take several hours, but it's well worth the time if you're on number of prescription drugs. You might discover hundreds of dollars in savings. Or it might pay to hire a consultant to help you shop for a plan. And while it might be frustrating to spend this time or money, remember: These drugs may be keeping you healthy.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.