First, the good news. If you have clients with prescription drug coverage through a Medicare Part D or Medicare Advantage plan, they may benefit from some trends and developments in 2014.
• The prescription drug “doughnut hole” is about $80 smaller in 2014 because the coverage limits have changed. The doughnut hole is the gap of coverage in which the individual pays a greater percentage of drug costs. For 2014, the initial coverage limit will be $2,850 (versus $2,970 in 2013), at which point beneficiaries enter the doughnut hole; the out-of-pocket threshold will be $4,550 ($4,750 in 2014), at which point beneficiaries exit the doughnut hole. Catastrophic coverage then begins with the beneficiary paying just 5 percent of drug expenses and their plan covering the rest for the remainder of the year.
• Seniors in the doughnut hole in 2014 also will pay less for their prescriptions than they did in 2013. They’ll still pay 47.5 percent of the cost of brand-name drugs, the same as in 2013. But they will pay less for their generic drugs, 72 percent in 2014, down from 79 percent in 2013.
• The Part D base beneficiary premium is $32.42 in 2014, up slightly from $31.17 in 2013.
• Brand-name drugs such as Nexium and Cymbalta are set to lose patent protection in 2014, opening the door for lower cost generics to enter the market.
The bad news, however, is that it’s likely your clients with Medicare are paying more than they need to for prescription drugs.
A recent study from the University of Pittsburgh found that 95 percent of Medicare beneficiaries don’t choose the most cost-effective Part D plan. This is important because prescription drugs can make up such a sizable portion of health care costs.
Many factors can contribute to less-than-optimal Medicare plan choices. Seniors may have dozens of plans to sort through, leading to “choice overload.” This makes it tempting to take a shortcut, such as choosing a plan that a friend or family member has, despite having different health-care needs. Or seniors may choose a plan that looks good in an advertisement rather than doing the research required to find a plan that meets their drug needs at the lowest cost.
Another pitfall for many seniors is to stay with the same plan year after year, even though their medications have changed or the plan itself has changed.
Four Steps For Managing Prescription Drug Costs
Your clients may not realize that they could save hundreds (even thousands) of dollars over the year by switching to a prescription drug plan that’s a better fit.
You can offer your clients valuable guidance by helping them to understand the financial impact of their Part D plan and drug choices. Following are steps to more cost-effective coverage decisions.
1. To begin, your client should review her drug list with her doctor. It’s important for patients to periodically review their prescription drug list with their primary care doctor. Together, the doctor and patient can assess the appropriateness of the patient’s current drug regimen. Such a meeting also provides an opportunity for your client to discuss with the doctor whether a less expensive brand or a generic equivalent may work just as well as the drug she currently takes.
2. Compare prescription drug plan formularies, coverage tiers and restrictions. Medicare’s annual enrollment period is under way, running October 15 through December 7, so the time is right for your client to compare prescription drug plans. For most Medicare prescription drug plans, the premium and deductible are relatively modest. In 2014, the average premium will be $31 a month and the deductible is capped at $310. What your client pays out of pocket is determined largely by how well a given plan covers the specific drugs she takes.
Medicare prescription drug plans are required to cover drugs in every therapeutic class, but they do not have to cover every drug in a class. This means that some plans may cover all drugs your client takes, and some may not. Thus, it’s important for your client to check her drug list against a plan’s formulary.
Next, she needs to look at the coverage tier to which the plan assigns each of her drugs and the corresponding copay or co-insurance amount. This can be one of the biggest drivers of cost difference between plans. For example, one of your client’s drugs could be in Tier 3 in one plan and in Tier 4 in another. This can add up to a significant cost difference of sometimes hundreds of dollars, as your client fills that prescription month after month.
Finally, your client should check to see if a plan places any restrictions on the drugs she takes. For example, a plan may require prior authorization before it will fill prescriptions for certain drugs. It may limit the quantity of a medication that it will cover each month, or it may require your client to try a less expensive drug before it will cover a more expensive one.
3. Evaluate the plan’s preferred pharmacies. Many Medicare prescription drug plans negotiate lower prices with selected pharmacies in their networks. Your clients may see significant cost savings by filling their prescription at one of these “preferred pharmacies.” In some cases, the copay is higher at a non-preferred network pharmacy than it is at one of the plan’s preferred pharmacies. Your clients also should check their plan for other cost-saving options, such as using a mail-order pharmacy or buying a 60-day or 90-day supply of a maintenance medication.
4. Do the math before buying a plan with gap coverage. For seniors who use many drugs, Medicare Part D prescription drug plans that provide coverage in the doughnut hole may seem to offer valuable added protection. But it’s important to do the math to determine whether the plan’s benefits offset a much higher monthly premium.
In 2013, about half of the plans offering gap coverage limited their benefit to generic drugs, and none of the plans provided gap coverage for all of the drugs on their formulary. It can be costly to go without adequate prescription drug coverage, but overprotection also can be costly. Before your client buys a prescription drug plan with gap coverage, she needs to make sure the added coverage will save her money.
Health-care costs are a central part of a retiree’s financial equation, and prescription drugs make up a large share of this cost for many seniors. You can offer a valuable service to your retired clients by making their prescription drug coverage a part of the ongoing part of their annual financial plan review.
Paula Muschler is operations manager of the Allsup Medicare Advisor®, a nationwide Medicare plan selection service that helps financial advisors guide their clients to the Medicare plans that best match their needs and preferences. Allsup Medicare Advisor® is an unbiased, flat-fee-based Medicare plan selection service that serves as a trusted resource for financial advisors and seniors. Allsup Medicare specialists can work with your clients one-on-one to assess their needs, research their Medicare options and help them choose cost-effective coverage that protects their health and retirement savings. Financial advisors may contact (888) 220-9678 or go to FinancialAdvisor.Allsup.com for more information.