Choosing a Medicare Drug Coverage Plan

With “open season” upon us, it’s time to choose which Medicare Part D Drug Coverage plan is right for you.  Traci Richards and Stephen Schuster, co-founders of the health insurance resource, help you navigate this confusing process.

The annual enrollment period for Medicare Part D Drug Coverage for 2007 starts November 15 and ends December 31, 2006.  If you’ve already selected a plan, you might think you don’t need to go through a new selection process.  While this may be true, the great majority of plans will change in 2007, so you probably would be wise to go through the process of comparing your current plan to others available to you.

Even if you do not participate in Medicare, you may have a dependent, relative, or close friend who does, and learning how this program works will allow you to help them out.  In addition, most private health benefits programs follow Medicare’s lead.  It may not be long before your employee drug benefits start to mirror some of the aspects of the Medicare Part D Drug Coverage Program.

Whether the Medicare Part D Drug Coverage is appropriate for your needs depends upon how you, as an individual, use prescription drugs.  Some of the information is confusing and difficult to understand. Healthcue has reviewed most of the resources that explain the program and provides an overview in this column.

First, you will need to make a list of the prescription drugs you take, their dosages, and how often you take them.  You’ll need this information to make the most of some of the resources listed below. 

One of the best non-government resources we’ve found for determining the cheapest plan that covers your prescriptions can be found at  This AARP site gives a good overview on how to use the Medicare Prescription Drug Plan comparison tool found at  In addition to calculating which Drug Plan is right for you, the AARP site also provides answers to a variety of Medicare-related questions at

Several other non-profit sites dedicated to improving the quality of health might also be useful when choosing drug programs—check out or

For the 2007 Medicare Part D Drug Coverage, there is a baseline “standard benefit.” Since the standard benefit can have a large impact on your drug choices and personal finances, it is important to know how it works and how much it will cover.  Participants have a $265 deductible for prescription drugs in 2007.  After you have spent the $265 deductible, you will then pay 25% co-insurance on the next $2,400 of expenditures for drugs.  This means that for the next expenditures, you will pay a maximum of $600.  For all expenditures over $2,400 up to $3,850, you will pay 100% of all prescription drug costs.  For all expenditures over $3,850, you will pay 5% co-insurance, or a fixed co-pay depending on the plan you choose.  You will also pay a monthly premium that HealthCue estimates will average around $35.
What if you have coverage now from your employer, union or an individual health insurance policy?   You may keep that coverage.  You should receive a letter from your employer, union or health insurer stating that your coverage is “creditable.”  This means that it provides benefits at least as good as the standard benefit coverage under the Medicare Part D Drug Coverage.  Why is this important?  Well, if you do not sign up for the Medicare Drug Coverage Program, but decide that you want to do so after the enrollment period (December 31st of this year), you will be required to pay a penalty of 1% per month unless you have received the letter that your previous coverage was “creditable.”

Because there are many plans being offered, the competition for your business is great.  There are many different premium structures, some as low as $2 per month in some states.  There are also many plans that cover the so-called “doughnut hole” you might have heard about.

What is the “doughnut hole?”  Remember the standard drug benefit.  For expenditures over $2,400 and up to $3,850, you are responsible for 100% of the cost.  This is the “doughnut hole” you hear politicians and others talking about.  Many of the plans offer coverage for expenses in the “doughnut hole.” Of course, you will pay a premium that is higher than the average $35 per month to obtain that coverage. 

To determine the best Medicare plan for you, use one of the Drug Finder Calculators located at the websites mentioned above to compare your current drug expenditures to the standard drug benefit coverage.  This should assist you in determining what course of action to take.  Remember, if you are covered under an employer, union, or individual policy, be sure to include in your monthly drug expenses the premium cost you pay for prescription drug coverage.  This will usually be about 15% of your total monthly premium cost.

Lastly, be sure to find out if the drugs you are currently taking are on the “formulary” of the plan you are considering purchasing.  Each plan has a different “formulary” with different pricing mechanisms for the same drugs, such as co-pays, deductibles and co-insurance.  The only requirement a plan has is to list on the “formulary” two drugs in each therapeutic class.  This means that the drug you take for your high cholesterol may not be on the “formulary,” or it may have a co-pay or co-insurance that forces you to pay 100% of the cost of that drug.

Armed with knowledge of the formulary and what you currently spend for prescription drug coverage, you should be able to figure out which Medicare Part D Plan to select.  If you are still lost, try the Medicare Hotline at (800) 633-4227.  If all the plans are beyond your budget, Medicare has what is called the “Extra Help Program.”  To learn more about qualifying for “Extra Help,” call (800) 772-1213 or go to

  • Do you have a question about your insurance coverage or health benefits?  Send it to and check back soon to see if it has been answered.


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