4 Key Changes to Medicare Drug Coverage

Here's what to look for when reviewing your Part D options during open enrollment this year.

Should I consider changing my Medicare Part D plan during open enrollment? Will there be many changes to Part D prescription drug plans for 2011?

Yes to both questions. New coverage rules, rising premiums and co-payments, the elimination of some popular plans, and the introduction of some intriguing new competitors means it is particularly important that you review all of your Medicare Part D options this year. You have from November 15 to December 31 to pick a Part D plan for 2011.

Doughnut hole shrinking. The big news is the shrinking of the doughnut-hole coverage gap. In 2010, the coverage gap kicks in when your prescription-drug expenses total $2,830 for the year (including both your share and the insurer’s share of the costs). At that point, you generally have to pay all of your drug bills yourself until the total cost of your drugs for the year reaches $6,440, when the insurer picks up most of the bill. Those limits rise slightly in 2011, to $2,840 and $6,448. (By 2020, the dreaded doughnut hole will have shrunk dramatically.)

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New in 2011: a 50% discount on brand-name drugs in the doughnut hole. Beneficiaries also get a slight break on the cost of generic drugs in the doughnut hole next year– paying 93% of the cost rather than the full 100%. So if you’ve been paying extra for coverage in the doughnut hole, it’s a good time to reassess your options.

Premiums rising. Average premiums for Part D are rising by just $1 in 2011, to $30 per month, according to the Centers for Medicare & Medicaid Services. But several of the more popular plans are increasing their premiums substantially. Premiums for the ten largest Part D plans are rising by an average of 10% in 2011, according to a study by Avalere Health. And for several plans, those increases come on top of significant increases over the past few years.

Popular plans leaving. Also, a few popular plans are leaving the business, as insurers consolidate some of their offerings. For example, United HealthGroup’s AARP Medicare Saver, the second-most popular Part D plan last year, is going away, and customers will be switched to another of the insurer’s plans. If you are among those moved over, be sure to review all of your options. Another plan may be a better match for your medications.

New plans appearing. Meanwhile, a few interesting, low-cost plans are entering the business in 2011, such as the Humana Walmart-Preferred Rx plan, which costs just $14.80 per month – well below the average price for Part D policies. But your out-of-pocket costs will vary depending on where you purchase your medications. If you buy them at Walmart, Sam's Club or RightSource Rx mail-order pharmacy, you'll pay $2 to $5 for generics (or $0 for generics through RightSource); 20% of the cost of preferred brand-name drugs; and 35% of the cost of non-preferred brand-name drugs. But if you use an outside pharmacy, your co-pay for both levels of generics is $10, and you’ll pay 37% co-insurance for non-preferred generics and preferred brand-name drugs, and a whopping 50% for non-preferred brand-name drugs.

How to compare plans

As always, when comparing your options, consider premiums as well as the coverage for your specific drugs -- a plan with a low premium could cost you more if you have to pay high co-payments for your medications. Ask your doctor if you can switch to generics or other lower-cost drugs before you pick your 2011 plan – the plan with the best deal for brand-name drugs might be different than the best plan for generics (see our Doughnut Hole Calculator to find generics and other lower-cost alternatives).

Depending on the drugs you take, your total out-of-pocket costs can vary even among plans offered by the same company. A beneficiary in Miami who takes four common medications would pay a total of $573 over the year for co-payments plus premiums under the new Humana Walmart Preferred Rx plan, as long as he or she used one of the preferred pharmacies . But, says Ross Blair, CEO of PlanPrescriber.com, that beneficiary would pay much more for the same drugs under other plans offered in Miami: $784 for Humana Enhanced, $1,485 for Humana Complete, $743 for United Healthcare AARP MedicareRx Preferred PDP, $1,230 for United Healthcare AARP Medicare Rx Enhanced PDP, $605 for Wellcare Signature and $706 for Wellcare Classic.

To compare the total costs for your specific medications, go to Medicare.gov’s newly improved Plan Finder tool, which lets you type in your zip code, drugs and dosages, and shows the total out-of-pocket costs -- premiums plus co-pays -- you’d pay for the year.

Also keep in mind that starting in 2011, individuals who earn more than $85,000 (or $170,000 if married filing jointly) will have to pay a high-income surcharge for Part D premiums, similar to the high-income surcharge for Medicare Part B. The amount of the surcharge has not yet been determined .

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

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.