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Managing Medicare's Costs

Re-examining your Part D coverage should be a priority during Medicare's open enrollment (1 of 2)

It’s time again for Medicare’s annual open enrollment period, which runs from October 15 through December 7. In most cases it is the only time of year when people with Medicare can change their health coverage.

If you have Medicare and have time to check only one thing during open enrollment, it should be your prescription drug coverage, the area where out-of-pocket costs are rising fastest. Last year the average Part D stand-alone plan premium jumped 13%, the largest hike since 2009 according to a report by the Kaiser Family Foundation.

In addition, the largest premium hikes were in the most popular plans. The 3.5 million member AARP MedicareRx Preferred plan increased its premiums 21%, while two other plans, each with more than one million members, raised their premiums by 25% (the average premium increase for 2017 stand-alone plans has not yet been released).

The steep rise in prescription drug costs is relatively recent. Prior to 2013, drug costs were not a major concern for most retirees, with increases averaging less than 3% a year from 2006 through 2012. But in 2013 the prices for more than 600 prescription drugs used by Medicare beneficiaries went up by an average of 9.4%, according to AARP’s Rx Price Watch report. And since then, the annual increases in drug prices have averaged in the double digits.

Brand-name drugs have been the driving force behind the price surge. Although they account for fewer than 20% of all prescriptions, brand-name drugs heavily influence overall drug spending patterns, costing eight times as much as generic drugs, on average. And just one specialty drug, which is the most expensive type of brand-name drug, can add several thousand dollars a year to a retiree’s out of pocket costs.

Generic drugs, in contrast, have had relatively benign price increases of less than 3% a year since 2006. Even that trend, however, may be starting to turn the other way, according to another AARP study last year.

More than 40 million Medicare enrollees have Part D coverage, and their exposure to high drug costs depends partly on the type of plan they have. Those fortunate enough to have employer-sponsored Part D plans usually have the best drug coverage.

In employer plans, out-of-pocket spending for prescription drugs is fairly stable since the employer typically screens out weaker coverage and also pays a portion of the premium. More important, employer drug plans usually have out-of-pocket limits, whereas other types of Part D plans have only catastrophic coverage limits.

Most Medicare Advantage plans include Part D coverage that is similar to the coverage in Part D stand-alone plans. But unlike stand-alone plans, Advantage plans can smooth out spikes in drug costs by re-directing a portion of the monthly payments for medical benefits that they receive from Medicare.

The most volatile type of Part D coverage is the stand-alone plan, and that’s where the payoff from yearly re-evaluations is likely to be greatest. One study published in 2015 found that during a six-year period, 80% of the people who re-examined their stand-alone drug coverage were able to save an average of $728 by changing to different plans. And earlier studies found even higher percentages of people in overpriced stand-alone plans.

In an analysis of the wide pricing swings in Part D stand-alone plans, Kaiser Family Foundation researchers concluded that many people in Part D stand-alone plans could save money by re-evaluating their coverage – sometimes thousands of dollars – by changing plans. But despite the fact that the majority of people in stand-alone plans pay more than they need to, only 13% of them switch coverage each year, according to a study that looked at four years of enrollment records.

Here are three reason people give for not re-evaluating their drug coverage each year, none of them valid, and also suggestions for finding the best coverage.

1) I don’t need to re-evaluate my plan this year because last year I switched to the lowest cost plan for the drugs I take. Last year’s lowest-cost plan for your drugs will probably not be this year’s lowest-cost plan. Plans change their premiums, benefits, drug formularies and pricing tiers yearly. When a plan takes a drug that is in Tier 2 this year and moves it up to a Tier 3 drug next year, it adds several hundred dollars a year to your co-payments.

One study of 25 people enrolled in stand-alone plans found that if they remained in the same plan for two years straight, 22 of them would have paid more than they needed to in the second year. The amounts they saved by switching to a lower-cost plan ranged between $276 and $562.

The only way to find the lowest-cost plan is to do a drug plan comparison (or have someone do it for you) using the Medicare Plan Finder tool. It crunches the numbers – premiums, deductibles, co-payments, and co-insurance payments – to find the plan that has the lowest total costs for a given set of drugs.

2) I do not need to re-evaluate my drug coverage since my plan has low premiums. If you do not take any prescription drugs, you should go with the plan that has the lowest premiums. But even if you take only one drug, a low-premium plan may not be your lowest-cost option.

As an example, the lowest-premium national stand-alone plan in 2017 is the Humana-Walmart Rx plan with a $17 monthly premium. But if you use the Advair Diskus inhaler, an asthma drug, and it’s the only drug you’re using, you will pay $372 more for monthly refills in the Humana-Walmart Rx plan than if you were in the First Health Part D Value Plus plan, whose $42.30 monthly premium is more than twice that of the Humana plan’s.

And if you get mail-order refills for the Advair Diskus, the least expensive plan is AARP Medicare Rx Saver Plus plan, which has a $33.40 monthly premium but will save you $193 a year compared to lower premium Humana-Walmart Rx plan.

3) Part D is too complicated to understand, so I’ll do nothing. It’s true that Part D is complex, but you can get an expert to do your drug plan evaluation at no cost. Call 800-MEDICARE and say that you want to find the lowest-cost plan in 2017 for the drugs you take. The 800-MEDICARE representative will take the names, dosages, and monthly quantities of your drugs and use the Plan Finder to identify next year’s lowest-cost plans for your drugs – stand-alone plans as well as Medicare Advantage drug plans.

If you want to switch plans, the representative to do it for you. When you change plans, you do not need to dis-enroll from your current plan – Medicare does that for you at the end of the year. You can also get assistance from your state’s Medicare counseling agency, whose phone number you can find at this web site.

Or, you can do your own drug plan comparison. Before doing your own, you might want check the video tutorials on the Plan Finder page. And if you want to switch plans, you can also do that on the Plan Finder.

When you change plans, in most cases your prescriptions will be transferred from your current plan to your new plan, although you should verify that with your new plan. Your new coverage will start January 1, 2017.

Finally, whether you use the Plan Finder yourself or get someone else to do it for you, be sure to compare the costs of mail-order refills to the costs of monthly refills. Also, if the plan you choose has a preferred pharmacy network, see if the pharmacy that you use is part of the preferred network.

Finally, before changing plans check to see if the plan you are going to enroll in has restrictions on one or more of your drugs. Restrictions sometimes make it difficult to get some drugs even when they are on the plan’s formulary. ◊◊

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