10 Things to Know About Medicare Part D

Jayashri Sankaranarayanan, MPharm, PhD


August 17, 2010

In This Article


In 1965, the US government created Medicare, a national health insurance program for certain permanent residents and US citizens. Those eligible for Medicare include persons 65 years of age and older, disabled persons younger than 65 years, and those with end-stage renal disease.[1] The new Medicare outpatient prescription drug coverage (known as Part D) shifted spending from the private sector and state Medicaid to Medicare in 2006 making Medicare the nation's largest public payer of prescription drugs.[2] Total US prescription spending by Medicare was 2% in 2005; this has risen to 18%.[2,3,4] The overall purpose and structure of Part D remains unchanged but has improved from its start in 2006. With the passage of the Patient Protection and Affordable Care Act (PPACA) of 2010, more changes to Medicare Part D coverage are imminent.[5,6]

Before Part D became available, the majority of the 46 million Medicare beneficiaries did not have coverage for outpatient prescription drugs. Over 25% of the elderly, when faced with high out-of-pocket drug costs, showed cost-related nonadherence behaviors that included skipping doses of their medications, taking smaller doses, or failing to fill their prescriptions.[7] Such cost-related medication nonadherence behaviors have negative health outcomes, such as greater use of emergency department services and hospitalizations.[8] This could result in serious health consequences for patients and economic consequences for healthcare systems.

Even after Part D became available, about 5 million Medicare beneficiaries still do not have outpatient prescription drug coverage[9] and about 11.5% of seniors still report cost-related nonadherence.[10] This may be because beneficiaries who are healthy and who do not have any current creditable drug coverage (that is at least equal to Part D) do not perceive the need to enroll in Part D and consequently incur penalties on later enrollment. Other beneficiaries who qualify for extra help to pay for their outpatient drugs are unaware of applications for low-income subsidy.

Many elderly persons trust their physicians and pharmacists to provide information on the cost and quality of prescription drugs.[8] Although providers realize that it is critical to prescribe drugs that can reduce patients' copayments for prescription drugs, they are often unaware of the prescription plan formulary, patient copayment amounts, price of drugs prescribed,[11] and resources available on Medicare Part D. To assist providers in guiding patients, this article provides an overview of 10 things about Medicare Part D drug coverage and its implications for practice.

What Are the Components of Medicare?

Medicare consists of 4 parts[1,2]:

1. Part A helps cover inpatient hospitalization, skilled nursing facility care, hospice care, and some home health care and prescription drugs administered in these settings. No monthly premium is charged for this service because payroll taxes generally cover it, especially if the beneficiary has worked for 10 years with a Medicare-covered employer who paid Medicare taxes.

2. Part B, often called "supplement medical insurance," helps cover physician office visits and outpatient care, including some therapy and home health care and prescription drugs administered in these settings. Beneficiaries must pay a monthly premium for this plan.

3. Part C, usually called "Medicare Advantage Plans" or "MA Plans," are plans offered by private insurance companies approved and paid by Medicare. They provide all of Part A and Part B services, including hospitalization and physician visits and emergency and urgent care. Some may offer extra coverage for other services, such as vision, dental, and prescription drugs. With this plan, a monthly premium is usually required, as well as a premium for Part B.

4. Part D is the outpatient prescription drug coverage plans that became available in 2006 under the Medicare Modernization Act of 2003 (MMA). By Medicare paying for about half of drug costs, Part D was designed to protect beneficiaries from very high drug expenses. Private insurance companies offer Medicare-approved Part D plans. A monthly premium is usually required for these plans.

Persons who have Medicare Parts A and B are said to have "traditional" or "original" Medicare, which has wide provider choice but requires high cost sharing from beneficiaries. Some Medicare beneficiaries choose to have original Medicare and also carry supplemental health insurance plans (also known as "Medigap," which does not have creditable drug coverage) that are offered by private insurance companies to help them pay the high cost sharing of original Medicare. Those on Part C, or Medicare advantage plans, have restricted provider choice in a network, which comes at lower cost sharing than original Medicare.


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