In 2019 the donut hole”—a temporary limit on what Medicare covers—for brand prescription drugs will be no more.
As part of recent legislation, Congress ended the “donut hole” a year earlier than scheduled. It won’t be missed. For those readers whose prescription drug costs were relatively low, you did not have to struggle with this complex provision of
Medicare Part D. For those of you faced with the “donut hole” due to the high cost of your prescription meds, you will be happy to say good riddance. For professionals like me who had to explain how it worked, it will save time and save my clients the aggravation of having to listen and plan around it.
On a personal note, my 96-year-old mother-in-law was frequently in the “donut hole.” She held me personally responsible for its existence and reminded me of that twice each year. The first was during the annual enrollment period; the second was during the year when the cost of her medications put her into the “donut hole” and she had to spend more out of pocket.
In the spirit of looking forward, I will not spend time on how the “donut hole” worked. Instead, after providing some basic information on the Annual Enrollment Period (AEP), I will discuss how Part D will operate in 2019.
The AEP, which runs from October 15 through December 7, provides Medicare beneficiaries the opportunity to make coverage changes. This can be especially helpful if your health care needs have changed during the year. This is also helpful because your current Part D plan may announce changes for the next year that may require taking a close look to determine whether a change to another plan is warranted.
The AEP should be looked on as an opportunity to be proactive in your Medicare planning. Many beneficiaries don’t realize that Medicare is not a one-and-done decision. Coverage should be reviewed every year during the AEP.
Beneficiaries often misunderstand the purpose of the AEP and what they can and cannot do regarding their Medicare coverage. Because of the media attention the AEP receives before and during the window, beneficiaries recognize the term but do not always have a clear idea of its purpose.
WHAT THE AEP IS NOT
The AEP has nothing to do with enrolling (or disenrolling) in Medicare Part A or Part B. It has nothing to do with making changes to Medicare Supplement (Medigap) plan coverage.
WHAT THE AEP IS
The AEP provides the beneficiary with an opportunity to make changes to his or her Medicare Advantage and Part D coverage. Changes made are effective on January 1 of the following year. Of the changes allowed during the AEP, the opportunity to change Part D prescription drug plan coverage is probably the one that impacts most Medicare beneficiaries. It provides beneficiaries with an opportunity to change coverage necessitated by changes to their own prescription drug regimen or by changes to their current drug plan’s formulary. If beneficiaries do nothing else during the AEP, they should check to determine whether their current Part D plan makes sense going into the new year. Many beneficiaries end up paying hundreds and even thousands of dollars more for their coverage by ignoring this annual exercise.
You can do this analysis at www.medicare.gov. Click on the Medicare Plan Finder, and follow the instructions. If you are not computer literate, ask a grandchild to help! A better idea might be to call 1-800-Medicare, or contact the State Health Insurance Assistance Program (SHIP) at https://www.shiptacenter.org/ for assistance with evaluating, selecting, and enrolling in a Part D plan. Some financial planners also have the knowledge and experience to help. Be careful, however, of using a sales professional. In most areas there are 25 to 30 different plans available. Most sales professionals offer only one or two plans and may be biased toward offering you only the plans they represent.
WHAT CAN BE DONE DURING THE AEP
During the AEP the beneficiary may make the following changes to his or her Medicare coverage:
CPA and Financial Planner
James Sullivan , MS, CPA, PFS
DEMISE OF THE DONUT HOLE
Plus other tales from the upcoming
annual Medicare enrollment period.
Switch from Traditional (also referred
to as Original Medicare coverage)
to a Medicare Advantage plan.
Change may be made without answering health-related questions. Note: The beneficiary must be enrolled in Medicare Part A and Part B to enroll in an MA plan.
Switch from a Medicare Advantage
plan to Traditional Medicare
Most beneficiaries enrolled in Traditional Medicare purchase a Medicare Supplement (Medigap) plan. Depending on the state in which the beneficiary lives and other factors, it may not be possible to purchase a Medigap plan if the beneficiary has a preexisting health condition. Do not change from a MA plan to Traditional Medicare until it is clear whether a Medigap plan can be purchased.
Change from a MA only plan to
a MA plan with a prescription
drug plan (a MAPD plan).
Change may be made without answering health-related questions. Note that if a MA participant elects to participate in a stand-alone prescription drug plan, he or she will be dropped from the MA plan and go back into Traditional Medicare. Be very cautious – work with a planner who is familiar with these rules.
Change from his or her current
Part D prescription drug coverage
to another Part D plan.
Change may be made without answering health-related questions. This change can be driven by changes to the beneficiary’s prescription drug needs, by changes to his or her current plan’s formulary or a combination of both. Go to www.medicare.gov.
Change from one Medicare
Advantage plan to another.
Change may be made without answering health related questions.
Change from a MAPD plan to a
MA only plan.
Change may be made without answering health-related questions. Some
beneficiaries may do this because they have a creditable* prescription drug plan available from another source – such as the Veterans Administration. Again, be careful before making such changes.
Drop Part D coverage.
Beneficiary may have alternative creditable* coverage available.
*”Creditable” coverage means the alternative prescription drug plan is at least as good as, or better, then Medicare Part D. This is determined by an actuarial study. The plan sponsor should be able to provide that information to you.
The 21st Century Cures Act (signed into law by President Obama on December 13, 2016) eliminates the existing MA disenrollment period (MADP) that had taken place from January 1 through February 14. Effective for 2019, the act replaces it with a new annual MA open enrollment period (OEP) that will take place from January 1 through March 31.
The new OEP allows individuals enrolled in an MA plan to make a one-time election to go to another MA plan or Original Medicare. Individuals using the OEP to make a change may make a coordinating change to add or drop Part D coverage. This provision gives MA beneficiaries additional time and flexibility to make decisions regarding coverage.
GOING FORWARD WITHOUT THE DOUGHNUT HOLE
In 2019 there will be 4 coverage levels. Here is what I mean:
1. The first level of coverage is the annual deductible. In 2019 this will be $415. You pay this before plan coverage kicks in. Some plans offer a $0 annual deductible or a deductible less the $415. This seems appealing but when analyzing a plan look at the total plan cost – the annual deductible, the monthly premium, the co-payments and co-insurance.
2. The second level otherwise known as the initial coverage limit begins after the annual deductible. You pay 25% of the cost of the brand or generic drug.
3. The third level or the coverage gap level begins when you hit $3,820** of gross drug cost. This is the remaining remnant of the old “donut hole,” but it is much easier to understand. The cost sharing for brand drugs at this level does not change—it remains at 25%. You pay 37% of the cost of generic drugs. In 2020 the generic coinsurance will be reduced from 37% to 25%, meaning the third level of coverage will disappear.
4. The fourth level is catastrophic coverage that begins when your total drug costs for the year hit $5,100.** You pay the greater of 5% of the cost of the drug or $3.40 for generic drugs and $8.50 for brand drugs. Catastrophic coverage can still result in high drug costs for the beneficiary. For example, Xtandi is the brand name for the drug enzalutamide, a treatment for prostate cancer. In 2018 the cost of the drug to a Part D plan was $10,525 per month. The beneficiary paid the greater of the brand drug co-payment of $8.35 or 5% of the drug cost or $526.
The AEP offers you an excellent opportunity to be proactive when it comes to your Medicare coverage. You can make changes that better fit your current health care needs and your household finances. IIII
Jim is a CPA and financial planner. Jim’s practice focuses on helping his clients think about and plan for the costs of health care in retirement. He has written over 100 articles on health care costs in retirement and a book on Medicare for the American Institute of Certified Public Accountants (the AICPA). He is currently writing a book for the AICPA on the impact of chronic and terminal illness on retirement plans. He lives in Glen Ellyn with his wife, 3 children and 2 Beagles.