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Introduction to Medicare Part D

So many letters in the Medicare world: A, B, C, and now D! Medicare Part D refers to help with the cost of prescription drugs. It is run by private insurance companies and each plan has different prices and different formularies. No, it is not automatically covered in Original Medicare or Supplement Plans but does go along with them. It is often already covered in Advantage Plans; in fact, you cannot have an Advantage Plan with a Part D plan at the same time. (The few exceptions to this rule include some Private Fee for Service plans and Medical Savings Accounts). You may have Part A and/or Part B with a Part D on its own, but most people take a Supplement Plan and Part D together.

What Is a Medicare Part D Formulary?

A formulary is just a list of drugs that a private insurance company covers. They are usually ranked in tiers with lower tiers being the lowest costing drugs. In Medicare, typically Tiers 1 and 2 come with very low or no cost-sharing and do not include a deductible. Tiers 3 and above tend to include a deductible that must be paid first before the insurance company starts to pay, and the cost-sharing is higher.

Each private insurance company typically has a team of physicians, pharmacists, and other healthcare professionals to help determine their formulary. They also decide if there are quantity or dosage limits. This formulary often changes from year to year, so be watchful to make sure your drugs will still be covered. (If you need help, call a knowledgeable broker like me to help sift through the information!)

What If I Don’t Sign Up for Part D?

There are some people who choose to not sign up for Medicare Part D for one reason or another. Maybe they don’t have prescriptions yet and don’t want to pay money for another plan. Maybe the extra cost is too much. Or maybe they feel like they can get a better deal on their own. Whatever the reason, if they do not sign up and do not have prescription coverage when they first turn 65, they will start to accrue a late penalty. This penalty starts to accumulate after 63 consecutive days without coverage.

Fortunately, this penalty will not kick in until a person signs up for Part D plan later in life. Unfortunately, when you do sign up, the penalty will be applied every month and will last as long as you have a plan, even if you change insurance companies. (As of 2025, the penalty is about .40 cents for every month without coverage or $4.40 for every year without coverage).

How Do I Avoid a Late Penalty?

The easiest way to avoid a late penalty is to have “creditable” coverage in place. If you are covered under employer coverage past age 65, the Social Security Administration will verify that your coverage counts as creditable. Creditable means it meets the basic minimum standard allowed by Medicare. Creditable coverage avoids a late penalty. Other coverage that counts as creditable would be through the VA (Veterans Affairs) or something similar. Check with the Social Security if you are unsure if your coverage counts as creditable. Coverage on a Medicare Advantage Plan with prescription coverage counts as creditable too.

The second way to avoid a late penalty if one is already in place is to sign up for a Low-Income Subsidy, also known as “Extra Help.” This program is run through the Social Security Administration (apply here) and is based on your income and assets. Qualifying individuals within income limits may receive help with prescription costs and eliminate their late penalty.

Concluding Thoughts

Don’t overlook Medicare Part D! It might seem like no big deal, but prescription costs can really rack up the medical bills quickly. Plus, no one likes to see their money wasted on penalties. Make sure you look at all of your options, find the coverage that fits you AND your budget, and get something put in place.

Medicare Advantage: Part C

We’ve already talked about Original Medicare containing Medicare Parts A & B, but there is also a Part C (and a Part D) called a Medicare Advantage Plan. What is Part C? And what are the “advantages” like the name implies?

A Medicare Advantage Plan is run by a private insurance company that takes care of your Part A and Part B coverage in one plan. Most of these plans include prescription coverage, and often they include benefits to cover dental care, vision, and hearing needs. Most importantly, these plans include an annual out-of-pocket limit to help protect your finances. If your personal Medicare costs reach that amount in a single year, the plan will take over the remaining Medicare costs for the year. So in other words, this plan like Original Medicare with bonuses. Let’s dive into the specifics.

Top Advantages of Medicare Advantage

There are a few strong benefits to a Medicare Advantage Plan. First is the cost savings. Premiums in an Advantage Plan tend to be much lower than a Medicare Supplement Plan. For someone on a limited fixed income, this is pretty important. Also, because dental/vision/hearing benefits are usually included within the plan, this saves money from additional insurance plans or service costs. Along with these savings is the out-of-pocket cap mentioned earlier to protect your personal finances.

Another advantage is that in addition to dental/vision/hearing benefits, these plans often throw in other “extras” to keep you healthy. Many offer a free gym membership. Some offer rewards programs for completing healthy activities, like going in for your annual wellness visit. Some offer over-the-counter funds. These extras are intended to help you lead a healthier lifestyle and take a stronger role in your own health management.

And finally, the other main advantage is that these Advantage Plans typically cover prescription drugs. This means that even if you have very few or no prescriptions, you can avoid the late penalty that is applied to people who skip drug coverage and then sign up later in life. If you already have drug coverage (like through the VA), there are plans you can choose from that don’t have prescription coverage and possibly save a little money.

Disadvantages of Medicare Advantage

Like all options in life, the Advantage option comes with some drawbacks. The first and most obvious is that you are bound to a network. You choose a Primary Care Physician (PCP) who acts within a specific network of private insurance. You don’t have the freedom to see any doctor who participates in Medicare. Some plans allow you to go outside the network if you are willing to pay a little more. Your PCP will be your go-to for regular check-ups and referrals for specialists. Fortunately, most of us are familiar with this restriction since employer health coverage tends to work in the same way.

The second drawback to an Advantage Plan is that you are responsible for paying copays and coinsurance for your use of the plan. For someone who needs to go into the doctor a lot, this could be very burdensome. Also, even though Advantage Plans tend to save people money, the max out-of-pocket limit tends to be higher than a single year of Medicare Supplement premium payments. This means that on a healthy year you will be saving money; on a high-needs year, you may be spending more.

The last disadvantage is the volatility of the market. Medicare Advantage Plans tend to have much more fluctuation than Supplement Plans. Each year private insurance companies evaluate changes in the market and adjust plans for the following year as needed. Sometimes changes are minimal; sometimes changes are major; and sometimes plans are even removed from the market. There are options when these things happen, but you have to keep an eye out. A trusted broker advisor (like me!) can offer valuable insights to make changes to your plan from October 15 – December 7 (aka AEP) to go into effect at the beginning of the following year.

Summary

Just like the Supplement side of things, Medicare Advantage has its pros and cons. There is no perfect option, but there are a lot of good ones. Hopefully this information gives you what you need to make an informed decision on how YOU want to proceed with your health coverage.

As always, please call me to clear up any confusion you have. I’m here to help!

We are excited to present our new blog with all that you could ever want to know about Medicare. Stay tuned!