Sign-Up Medicare Part D Prescription Drug Plan

With rare exceptions, Medicare doesn’t cover prescription drugs at all unless you’re in the hospital. There are two ways to fill the gap if you don’t have retiree health insurance. You can either get a Medicare Part D prescription-drug plan (paired with a medigap plan for your other out-of-pocket costs) or buy a Medicare Advantage plan that includes both medical and drug coverage. Either way, you need to follow a similar process when shopping.

Guide to Getting the Most Out of Medicare, 2015

Don’t just look at premiums when comparing plans. Find out whether your drugs are covered on the plan’s formulary (its list of covered drugs) and how the drugs are covered. Some plans have you pay 40% to 50% of the cost of certain brand-name drugs, which could be hundreds of dollars, even if your drugs are covered.

It’s easy to compare all of the Part D and Medicare Advantage plans available in your area at www.medicare.gov/find-a-plan. Type in your drugs and dosages; the tool estimates your total costs over the year. Reshop every year during open enrollment because coverage, costs and your drugs can change.

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The tool also shows when you’re likely to hit the coverage gap known as the doughnut hole. For 2015, your Part D plan provides coverage until your drug expenses reach $2,960 (including both your share and the insurer’s share of the costs). You then have to pay 45% of the cost of brand-name drugs and 65% of the cost of generics yourself. When your own out-of-pocket costs (as opposed to total costs) reach $4,700, your plan kicks back in, paying 95% of your covered drug costs.

To save money and possibly avoid the doughnut hole, shop at preferred pharmacies, which your plan will list in its enrollment materials. “Almost all of the prescription-drug plans now have a preferred pharmacy network,” says John Lee, senior director of Medicare Part D for Walgreens. Your co-pay may be $1 for certain generics at a preferred pharmacy instead of $10 at other pharmacies, or 35% of the cost instead of 50% for certain brand-name drugs. A preferred mail-order pharmacy may cost even less.

Generic drugs can cost up to 85% less than brand-name versions. If the generic version isn’t an option, your doctor may be able to switch to another drug that costs less under your plan.

See Our Slide Show: 11 Common Medicare Mistakes

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.