Part D Made Simple

The new drug plan offers a lot of choices, plus a range of premiums.

By Kimberly Lankford, Contributing Editor

From Kiplinger's Personal Finance magazine, December 2005

Medicare recipients will be pleasantly surprised when they wade into the recently unveiled Part D prescription-drug plans. Prices are lower than anticipated, and choices are more varied. In New York, for example, 21 insurers are offering a total of 46 plans.

Rick Brown, 65, who lives near Memphis, has been inundated with ads for medicare drug plans, many of which charge a lot less than his current retiree insurance. But for Brown, switching coverage is a high-stakes decision. "If I decide to leave my company's program, I won't be allowed to come back," he says.

Despite the variety, drug coverage generally falls into three categories; the standard plan with the infamous "doughnut hole" is only one option. To extend the analogy, think coffee: In most cases, stand-alone Part D plans come in your choice of tall (basic coverage), grande (enhanced) and molto grande (super). The enhanced and super plans usually charge more in premiums but cover all or part of the deductible and coverage gap, so you'll have fewer out-of-pocket expenses.

A case study. As an example, let's consider Humana's lineup. Its basic plan conforms to medicare's standard coverage: After you meet a $250 deductible, the plan covers 75% of the next $2,000 of your drug costs. You pay the next $2,850 in drug outlays yourself (the doughnut hole), after which the plan pays 95% of your remaining expenses. Premiums, which are based on regional medical costs, range from $1.87 to $17.91 per month.

Humana's enhanced plan, which will cost between $4.91 and $25.36 per month depending on where you live, replaces the $250 deductible with a fixed schedule of co-payments. You pay nothing for generic drugs, $30 for a one-month supply of each drug on the company's preferred list, $60 for a non-preferred drug, and 25% of the cost of a specialty drug, until total drug costs reach $250. Co-payments are the same for the next $2,000 in drug expenses (with the exception of $7 for generics). After that, coverage is the same as the standard plan, so you'll have to pay the next $2,850 yourself.

On the high end, Humana's "complete" plan costs $38.70 to $73.17 per month and closes the doughnut hole, with the same co-payments as the enhanced plan. Once your total out-of-pocket costs reach $3,600, the plan pays 95% of your annual drug costs.

A Florida resident, for example, would pay $10.35 per month in premiums for Humana's standard plan, $20.12 for the enhanced plan and $61.70 for the complete plan. So it would cost an additional $616 per year to fill in coverage for the deductible and the doughnut hole.

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