Let’s start with a couple of questions. One: Do you have to have a prescription drug plan? No.
Should you have a prescription drug plan? Probably, yes.
Even if you don’t take any prescriptions at all now, there is a penalty to consider if you don’t sign up for a prescription drug plan right away. The penalty is one percent of the average cost of a drug plan calculated for each month that you haven’t signed up for a drug plan. The penalty works out to be around 40 cents per month. So, if you don’t sign up for a drug plan for 2 years your penalty will be around 40 cents times 24 months, or around $10 per month added to your premium each month, when you do sign up. I have seen penalties add up to as much as $70 a month for 20 years of not signing up.
Many prescription drug plans are very inexpensive, so as a practical matter, most people will choose to sign up for a drug plan right away.
Every one of us has a di?erent situation when it comes to our prescriptions. My 97-year-old mother used to brag that she took only one little pill while her friends had trays full of pills.
Now my mother takes two pills. Lots of us are fortune that way. We take a generic drug or two, and the cost is no big deal.
Other people take expensive name brand pills. You know a drug is expensive when it’s advertised a lot on TV. They don’t advertise the cheap ones. Take Humara for instance, probably the most advertised drug. It’s over $1,000 a month. Many of us think, “$1,000 plus for a bottle of pills. They got to be kidding.” But it takes over 100 million dollars to bring a new drug to market. Understandable, to spend that kind of money on R and D, pharmaceutical companies need a return. For those taking expensive drugs, the homework of choosing the right drug plan really matters, and could mean thousands of dollars of di?erence from one drug plan to another.
The ?rst matter of importance to know is that a carrier divides drugs into tiers based on cost. There are usually 5 tiers. Tier 1 is preferred generic drugs. They cost very little.
Tier 2 is non-preferred generic drugs, that cost a few dollars more.
Tier 3 is Preferred Name brand drugs. These are drugs that do not yet have a generic version for and they cost considerably more.
Tier 4 is non-preferred name brand drugs where we jump up to a somewhat higher cost.
Tier 5 are the specialty drugs, such as Humara, which cost a lot.
Every drug plan has a di?erent set of drugs they cover called a formulary. Plans are required to have drugs in every category in their formulary but they are not required to have all drugs. Certain drugs may be in formulary with some plans but not with others. More expensive drugs may also have other restrictions depending on the plan, such as the dosage they will cover, the pill quantity, or they may require step up therapy where you try out a less costly drug ?rst. More expensive drug plans, with higher monthly premiums, will have larger drug formularies than lower cost drug plans do.
Drug plans also have three phases to them. Most plans start out with Phase one, the deductible phase. The maximum deductible is set by Medicare each year. In 2026 it’s $615. With many drug plans, the deductible does not apply to the generic drug tiers, Tier 1 and Tier 2. With more expensive drug plans, they may not have any deductible for any tier at all.
Phase Two, after the deductible phase, is the Initial Coverage Phase. In this phase you make co-payments which are set amounts such as $5 per prescription, or with some plans they use co-insurance which is when you pay a percentage of the cost such as 30%. How much out-of-pocket cost you will have is based on the tier. Tier 1 and 2 will be very low, or may even be without any copayment at all, depending on the plan.
Tiers 3 through 5 will have higher co-payments which is where your out-of-pocket costs can add up.
But there is protection. If your own out-of-pocket amount reaches $2,100 then you arrive at a new phase called the Catastrophic Phase. After reaching $2,100 in a calendar year, which takes you into this catastrophic phase, you would have no further co-payments to make for the rest of the calendar year.
It is however important to know that if a drug is not in formulary with your plan, then the cost will be 100% out-of-pocket so if you take expensive named brand drugs it is very important to check a plan’s formulary before you enroll. If no drug plan covers a drug that you take, you can apply to have it brought into formulary for you, called an exception. Your doctor can likely assist you with this paperwork.
For some people, who are taking only basic generic drugs, choosing a drug plan may only take a few minutes of homework. For others it could be vital to understand exactly how, and even if, their drugs will be covered by their plan.
As healthcare agents, due to a recent cost-cutting measure by carriers, we are no longer paid commissions for drug plans by most carriers. Although we are not compensated, at ItsThatTime we believe that o?ering our knowledge in assisting our clients with their drug plans is an important part of our job. We will therefore run your drugs and make our plan recommendation for you, as a service.
