While Medicare Supplement insurance (Medigap) fills some of the gaps left by Original Medicare, it will not cover prescription drugs. Medigap policies sold after Jan. 1, 2006, no longer include prescription drug coverage.
Nearly 90 percent of seniors currently take one or more prescription medications, and the out-of-pocket expenses for these medications tend to get more expensive by the year. Because of this, it’s important to find a plan that covers your prescriptions.
Did You Know: To learn more about Medigap, read our guide: What Is Medigap?
How to Pay for Drugs With Medicare
Since Original Medicare does not cover prescription drug costs, you will need to find additional coverage options. These options may include Medigap policies, employer plans, and Medicare Part D.
Some of these plans have time-sensitive enrollment windows, so planning is necessary as you try to decide which plan is right for your situation.
Part A and Part B Coverage of Prescription Drugs
Medicare Parts A and B covers hospital care and doctor’s services. As such, the only drugs they cover are those that are administered in a facility. Pills and other medications that you pick up at the pharmacy will not be covered by Original Medicare.
Medigap Plans With Prescription Coverage
Prior to 2006, several Medigap plans included coverage for prescription medications. If you have one of these pre-2006 plans, specifically Medicare H, I, or J, they will continue to offer the same coverage. Note that if you change plans, you can never go back to your pre-2006 coverage.
Medigap plans sold after 2006 do not cover prescription drug costs, so Medicare members will need alternative coverage.
Employer and Union Prescription Drug Coverage
Your current or former employer or union may have supplied you with prescription drug coverage under your Medicare plan. In that case, you do not have to enroll in Medicare Part D.
Even if you have to enroll in Part D in the future due to losing coverage, you won’t have to pay late enrollment fees since you already had creditable coverage. Possible reasons for losing this coverage include retiring and having an employer or union that changes the coverage they offer their retirees.
Since modern Medigap plans don’t offer drug coverage and many retirees will not have creditable coverage from their old employers, Medicare Part D is the most readily available way to cover prescription costs.
If you have a Medigap plan, it’s important to enroll in Medicare Part D as soon as you are eligible. Even if you don’t need prescription medication coverage now, you will want Part D as a safety net for later. If you wait to enroll, you will have more trouble getting coverage and will have to pay a late enrollment fee.
Medicare Part D Late Enrollment Penalties
Medicare Part D late enrollment penalties are expensive. You will have to pay 1% of the national average for Medicare Part D premiums for every month that you were eligible for the plan, did not have another source of coverage, and did not enroll.
This penalty is added to the premium you pay for Part D, and it is something you will continue to pay forever. Additionally, the 1% average premium cost is not set when you enroll, meaning that since the premiums continue to increase, your penalty cost will also increase every year.
To put this in perspective, according to the Centers for Medicare & Medicaid Services, the average Medicare Part D premium in 2022 is $33 per month. Let’s say you wait just 12 months past the initial enrollment deadline to enroll in Part D. This means that you will have to pay a penalty on your premium equal to 0.01 x 33 x 12, or $3.96 per month, every month for the rest of your life.
If you wait longer, the penalty increases. If the premium goes up, your penalty increases again. It’s not hard to imagine how quickly this can escalate. If you waited 10 years, you would be looking at $39.60 every month, or $475 per year, just in penalties, and that’s assuming the average premium will still be $33, which is not likely.
Finding Medicare Part D
This means that it’s important to find the right Medicare Part D plan so you can enroll by the deadline and start getting your prescription drug coverage without paying extra fees. Since Medicare Part D plans are sold by private insurers (much like Medigap), your coverage and costs will vary depending on the provider and their location.
Unlike Medigap, which has only one open enrollment period designated on your Medicare card, Medicare Part D has an annual enrollment period. During this time, you can change plans to get coverage for your medications without worrying about preexisting conditions.
By contrast, switching Medigap plans often subjects you to medical underwriting, which means that providers can change or deny your coverage based on your health status.
Medicare Part D Costs
Though the national average monthly cost for Medicare Part D in 2022 is $33, monthly premiums can vary widely depending on your situation. Premiums as low as $10 per month and as high as $100 per month can be found from different providers.
In addition to the monthly premium, you will also pay an extra fee depending on how much you earn. Individuals with an income above $91,000, as well as joint filers with a combined income above $182,000, will have to pay an extra fee. The fee increases with your income.
As an example, let’s say you file with an income of $95,000. You will have to pay your plan’s premium every month plus $12.40. If your income is $115,000, that monthly fee increases to $32.10.
Medicare Part D and Medigap
Medigap insurance policies cover many expenses not covered by Original Medicare, including coinsurances, copayments, and deductibles. Medigap does not cover prescription drug costs, which is why Medicare Part D is often used in addition to the Medicare Supplement.
Part D plans have a few minimum requirements, which means that even though the plans vary by provider, they all follow these basic rules. First, your deductible cannot be over $480 (for 2022). Secondly, your drug costs cannot exceed 25% of what you pay for brand-name medications and 37% of the cost of generic drugs. Third, Part D plans reduce your drug costs in situations considered to be “catastrophes,” in the terminology of insurance policies.
At that point, your Part D plan would reduce the cap to 5% of all drug costs, or a flat price determined by your plan, depending on which is cheaper.
Bottom Line
Medicare Part D is a significant addition to your total Medicare package. While Medigap covers certain expenses, drug costs can be expensive both now and in the future. Even if you don’t need drugs at the moment, you need to prepare by signing up for Medicare Part D as soon as you can.
This will help you choose plans that complement each other, as well as avoid paying fees later.
To learn more about Medigap and insurance, be sure to read our helpful guides:
Medicare Part D, the government’s prescription drug benefit plan, made Medigap Plans H, I, and J obsolete. Plan H has not been available since before 2003.
The first open enrollment period for Medicare Part D is when you turn 65 and become eligible for Medicare. After that, October 15 through December 7 is an annual open enrollment period where you can sign up for Part D or change plans.
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