Medicare prescription drug coverage: You may need a new plan

Do you have the right Medicare prescription drug coverage? The answer could help you save big money on your out-of-pocket health care costs during your retirement years. 

"Retirees who regularly take prescription drugs can potentially save hundreds or even thousands of dollars with careful shopping for a Medicare Part D prescription drug policy," said Diane Omdahl, president of 65 Incorporated, an independent firm that helps people make smart choices regarding their Medicare coverage.

If you're new to Medicare, you may not even realize you need to buy a separate policy that covers prescription drugs. A possible exception: If you select a Medicare Advantage Plan that simplifies and combines Medicare's various parts and also covers prescription drugs. Even then, not all Medicare Advantage Plans cover prescription drugs, and when they do, they often have different features regarding their coverage.

As a result, if you regularly take one or more prescription drugs for chronic conditions, it's a very good use of your time to shop carefully for prescription drug coverage. You can make changes during Medicare's upcoming open-enrollment period, which runs from Oct. 15 to Dec. 7, with the changes becoming effective at the beginning of 2019. Unlike Medicare supplement plans, you can change your Part D plan each year without needing to satisfy medical underwriting.

Omdahl said if one or more of these red flags apply to you, it might be time to shop for new drug coverage:

  • If you haven't changed your Part D policy for several years
  • If you take brand-name prescription drugs or many drugs
  • If your doctor has prescribed different drugs for you during the year

Comparing prescription drug plans can be a daunting task. A key component of each plan is its drug "formulary," a list that assigns drugs to various tiers. Each tier can have a different set of co-payments and co-insurance features. The lowest tiers typically cover the least expensive or generic drugs, whereas higher tiers will cover more expensive, brand-name drugs. You'll typically pay less out of pocket for lower-tier drugs compared to those in higher tiers.

Each year, insurance companies can change a specific drug's tier level or change the co-insurance and co-payment features that apply to each tier. In addition, some plans negotiate for lower prices with specific pharmacies, identifying them as a preferred drugstore that charge less if you use them. Many policies also provide price breaks for mail-order prescriptions. 

Due to all these potential changes, anyone regularly taking one or more prescription drugs will want to determine how much you might pay for them under a new plan. Medicare's Plan Finder is a free, online resource that can help you make this determination. Or you can hire an independent firm such as 65 Incorporated to help you select a plan.

If you're already enrolled in a prescription drug plan, you should soon receive a disclosure from your drug company about changes for 2019. Be sure to read it carefully -- don't toss it with your junk mail!

If you became newly eligible for Medicare during 2018 and selected a Part D insurance policy for the first time, it's effective only for 2018, and it might change for 2019. Again, read any paperwork you receive carefully to find out if your plan is changing. 

Omdahl shares that all of her clients who've never previously changed their Part D plan ended up doing so as a result of an independent review -- which had an average out-of-pocket savings of $973. This example applies to people who regularly take either expensive, brand-name drugs or many drugs. If you take only a few, low-cost generics, your potential savings by changing policies could be much less.

Smart choices regarding Medicare prescription drug coverage will help keep you healthy and could potentially save you a lot of money. Be sure not to neglect your homework: Shopping for coverage is part of your new "retirement job." 

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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 Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.