Learning about Medicare is an important part of retirement planning. And unfortunately, the matter isn’t as simple as “When I turn 65, I will get Medicare and the program will cover all of my medical needs”. Medicare is actually divided into several different parts, some of which are optional depending upon your needs.
If you elect to enroll in Medicare Part D, you will enjoy prescription drug coverage. But that doesn’t mean you will receive unlimited coverage for medications. You will be subject to a coverage limit (currently $3,310) in 2016), and once you reach that limit each year, you will pay a larger percentage of your drug costs until you reach a second limit ($7,062.50). At that point, your prescription drug coverage kicks in again.
It’s called the Medicare Part D Donut Hole, and it’s a gap in coverage that has frustrated senior citizens ever since the Part D program launched in 2006. For years, Medicare beneficiaries had to pay 100 percent of their drug costs when they fell into the Donut Hole. But the passage of the Affordable Care Act luckily forced some changes in the program.
In 2016, you will pay 45 percent of brand 58 percent for generics if you fall into the Donut Hole. Each year, these percentages are scheduled to decrease until they both reach 25 percent in 2020. The Donut Hole will be mostly closed by that point.
In 2020, you will find that calculating your drug costs and making decisions about medications will become easier. But in the meantime, what you can do over the next four years to prevent falling into the Donut Hole, or at least climb out of it more quickly?
- Stick with your plan’s formulary if possible. Only medications on the formulary count toward your annual spending limit (unless you get a special exception)
- Get your drugs from a network pharmacy. If you fill your prescriptions outside the network, those costs won’t apply to your spending limit.
- Choose generics when possible. Your annual spending will usually be lower, and could prevent you from reaching the Donut Hole.
If you will be reaching retirement soon, or you’re already retired but need to reevaluate your Medicare coverage, call us to schedule a consultation. We can help you analyze your budget and weigh your options, so that you can choose coverage that best matches your needs.