Yesterday I met with a client who is turning 65 in June. He is a doctor, and this doctor was amazed by how complicated Medicare Part D drug coverage is.

As I explained how Part D drug coverage works, the doctor asked, “Why is this so complicated?” I told him I usually find myself apologizing to clients about Part D, especially people who take no prescription drugs, or use just one or two low-cost generics.

Late Enrollment Penalty

The doctor takes one inexpensive statin drug, so he was thinking he might not even sign up for Part D. I explained the late-enrollment penalty, which is 1% for each month a person delays enrollment in Part D after he has Medicare. The calculation for the penalty is also a bit complicated, but it currently totals a bit less than $4 per year that a person has delayed enrollment. A person who goes five years without Part D would pay around $19 more per month for any Part D plan he enrolls in. So a $30 monthly premium would be$49 with the penalty. And this penalty will increase in the future as the average cost of Part D increases.

The doctor’s wife advised him that he might need a Part D plan in the future, if his health situation changes.  I said I usually suggest that people who want to be “in the system” enroll in the lowest-cost plan (which is $18.50 per month in Arizona).

Lower- cost plans have a deductible.

This $18.50 plan has a $325 deductible, so a person enrolled in this plan is paying a premium and still must pay for his drug costs until he meets the deductible. The doctor would pay $18.50 per month for drug coverage that would not pay for his generic drug cost- unless his prescriptions change drastically during the year. The doctor was not impressed with this option. I wrote last fall about plans with deductibles.

The “Donut Hole”

This “coverage gap” affects people who take several expensive drugs. Every Part D plan has a limit on what the plan will pay for a person’s prescriptions.  In 2013, when what the individual pays PLUS what the Part D plan pays adds up to $2,970, that person goes into the donut hole. This means the plan no longer pays for that person’s drug costs, and the person takes on the full cost. However... as part of Obamacare, pharmaceutical companies agreed to give seniors a  discount on their brand drugs (52.5% in 2013).  So if a person’s monthly brand drug costs were $600, they would only have to pay $285 (47.5% of 600).

Catastrophic Coverage

Next I explained to the doctor how Part D works for people with extremely high prescription costs. Most people who go into the donut hole do so near the end of the year and do not come out of it. But, people using very expensive drugs will go into the donut hole and then reach what is called “catastrophic coverage”.  To get to this point, a person must have spent out of his own pocket $4,750. (What the Part D plan paid out is not included in this figure.) At this point, a person would pay $2.65 for generics, or $6.60 for brand or specialty drugs – or 5% of the cost, whichever is greater.

Step Therapy

The doctor doesn’t take expensive drugs, but I told him Medicare requires me to tell him about “step therapy”.  Every Part D plan requires step therapy if a person is prescribed certain expensive drugs.  The Part D plan will reject the expensive prescription and tell the patient  to first try less expensive drugs. A person must first try drug A. If that doesn’t work, he must try drug B, and then drug C, and so on. If lower-cost drugs don’t work for the patient, his expensive prescription will be approved.

Why doctors hate Part D.

At this point, the doctor said, “This is why doctors hate Part D!”  He said Part D plan requirements have created extra work for doctors’ office staff – and this extra time and work costs money – but doctors are not compensated for this cost.

I told him I hate Part D too! Why are there 26 plans to choose from in Arizona? Why does one plan cost $18.50 per month and another $90?  And why is the co-pay for the same drug $45 on one plan and $$95 on another plan? I could go on and on.

I don’t really hate Part D.

I just hate that it is so complicated. And, by the way, Part D plans change every year, so people need to to review their plan details every Open Enrollment Period (October 15 – December 7).

Part D can be a good deal for people who take expensive brand drugs. If the retail cost for a drug is $200, and a person pays a $45 co-pay, that’s a good deal.  But as more and more brand drugs go generic, the value of Part D is declining for many people.  And yet, most people are spending, on average, $32 per month for their Part D plan when they take $4 to $10 generics.

I recently wrote about a study that showed most seniors are enrolled in the wrong Part D plan and are paying too high a premium based on the drugs they take. Why is this the case?  Because Part D is too darn complicated and there are too many plans!!

Should you choose a Part D plan with a deductible? Most clients’ eyes glaze over as I explain how the deductible works.  And I’ve gotten calls from clients who forgot about the deductible in their Part D plan and wondered why they paid such a high price for a drug.

I have quite a few clients who signed up for a Medicare supplement and needed a stand-alone Part D plan – even though they take no drugs, or just a couple of generics.  They could pay $30 or more for a Part D plan that has no deductible, and they would pay $4 to $15 for their generics. The crazy thing is that they could buy those generics for $4 to $8 without Part D.

But these folks know that, while Part D is “voluntary“, there is a penalty for people who don’t enroll in a plan and then later find out they need the coverage. So I tell them they should pay the lowest premium just to be in the Part D system. And the lowest-cost Part D plans have a deductible.

In 2013, the standard deductible is $325 for Part D plans that have a deductible. These plans have monthly premiums that range from $15 (sorry, not in Arizona), or $18 to $26. I don’t know why a person would pay a higher price for a plan with a deductible when you can pay $32 for a plan without one.

An example of Part D confusion

I had a client call me about what she and her husband paid for the Shingles vaccine. They have different Part D plans. Her plan has a deductible, and his plan does not. Her plan costs $15.10 per month, and his costs $28.60 (in 2012).  She paid $166 for the Shingles vaccine and he paid $95.

The husband’s plan has a $45 co-pay for “preferred brand” drugs. It has a $95 co-pay for “non-preferred brand” drugs. I looked up Zostavax in his Part D plan formulary. Sure enough, Zostavax is a “non-preferred” brand drug on his plan.

The wife’s plan as a $320 deductible (in 2012). I checked her plan formulary and the retail price for Zostavax is $166. Because she paid the full retail price, this means she has not yet met her plan deductible.  She takes two generics that probably cost $4 per month, so that will not add up to $320 throughout the year – so she will never meet her deductible. Although, now she has paid $166 toward that deductible because of the Zostavax.

The wife asked me, “Why am I not in the same plan as my husband?”. I had to remind her that we had discussed her drug costs and options when she first enrolled in her plan. I reminded her that she got her Part D plan pretty much to be in the Part D system. I also explained to her that, if she had already met her deductible, her co-insurance for the Zostavax would have been just 20% of $166, or $33.

So, I tell people who don’t really need a Part D plan that they have some choices: 1) Don’t enroll in Part D. 2) Pay a higher monthly premium for a plan with no deductible – which is paying a high price for something they don’t even need. 3)  Pick the plan with the lowest premium – but that plan will have a deductible.

This deductible question is just one of the many things that make Medicare Part D confusing. I always end my post on Part D with the question: Why did the Powers-That-Be make Part D so complicated?

“Imagine what it would be like if a grocery store never displayed the price of anything. And the price you’re charged might be totally different from the price the next customer is charged for the same product. In fact, suppose you couldn’t even pick your own groceries.”  This is how drugs are sold to people in the United States, according to Dr. David Belk in his truecostofhealthcare.org website.

Dr Belk writes about the scam being perpetrated by pharmacies and insurance companies – and the victims are people with health insurance and Medicare Part D. Folks paying $15 to $30 per month (or more) for a Medicare Part D plan should pay attention to this.

Dr Belk points out that many drugs are now generic, and pharmacies get them for pennies per pill.  And yet, Part D plans require seniors to pay a $4 to $10 co-pay using their Part D card.  According to Dr. Berk:

“The co-pays are still based entirely on the insurance plan, so the same medicine in the same pharmacy might cost $5, $10 or $25 for a months supply. What’s more, people might pay several hundred dollars a year to get prescription drug coverage on their insurance, even though that coverage increases the cost of many medications and cost the insurance company nothing. It’s like buying a book of coupons that say “one for the price of two” at your local grocery store. You can see why they didn’t want to tell you about it.”

I find myself apologizing to clients who are signing up for Part D even though they don’t need it. They don’t take any drugs, or use one or two generics. I tell them Part D is voluntary – but they will be penalized if they decide to wait to enroll at some later date. I tell them, if they want to get into the Part D system, they should enroll in the lowest-cost plan – but that plan has a $320 deductible. That means these healthy people will probably never meet the deductible throughout the year.

They will pay $15 per month but will still pay full price for their drugs – until they pay their $320 deductible. And, if they don’t use their Part D card to purchase their generics, they will get a lower price (as described above by Dr. Belk). But if they want their drug purchases to be applied toward their deductible, they need to use their Part D card – and pay a higher price.

What’s wrong with this picture?

The problem is that there are 1,100 Part D plans offered across the county (30 in Arizona), and insurance companies negotiate prices and set the co-pays for each drug. I wrote about large price differences from plan to plan last week, using the Lipitor generic as a prime example.

Part D is one more example of how messed up the American health care system is – and why it is so much more expensive than other countries’ systems.  Why do Americans, those with health insurance and Medicare, allow themselves to be ripped off?