Introduction to Medicare Part D
This section constitutes an introduction to Part D. For
more detailed information on any of the topics in this
section, please click on the links within the topics. There
you will also find relevant legislative, statutory and CFR
Prior to 2006, Medicare paid for some drugs
administered during a hospital admission (under Medicare
Part A), or a doctor’s office (under Medicare Part B).
Medicare did not cover outpatient prescription drugs
until January 1, 2006, when it implemented the Medicare Part
D prescription drug benefit, authorized by Congress under
the "Medicare Prescription Drug, Improvement, and
Modernization Act of 2003." This Act is generally known as
The Part D drug benefit (also known as
"Medicare Rx") helps Medicare beneficiaries to pay for
outpatient prescription drugs purchased at retail, mail
order, home infusion and long-term care pharmacies.
Unlike Parts A and B, which are
administered by Medicare itself, Part D is "privatized."
That is, Medicare contracts with private companies that are
authorized to sell Part D insurance coverage. These
companies are both regulated and subsidized by Medicare,
pursuant to one-year, annually renewable contracts. In order
to have Part D coverage, beneficiaries must purchase a
policy (i.e., enroll in a plan) offered by one of these
The costs associated with Medicare Part D
include a monthly premium, an annual deductible (sometimes
waived by the plans), co-payments and co-insurance for
specific drugs, a gap in coverage called the "Donut Hole,"
and catastrophic coverage once a threshold amount has been
Qualified low income individuals can
receive help with their Part D costs for premiums,
deductibles and co-pays through the Part D
Low Income Subsidy (known as "LIS" or "Extra Help"),
which is administered by the Social Security Administration.
Within parameters established in law, plans
are free to establish their own
formularies. There is an appeal process for members who
need drugs that are not on their plan’s formularies.
Plans revise their formularies every year,
adding new drugs, eliminating others, and generally charging
higher co-pays and co-insurance for drugs. Beneficiaries
need to re-evaluate their plan options every year to be sure
their chosen plan will continue to meet their financial and
Many Part D plan sponsors offer multiple
plans that may be viewed as analogous to commercial "good,
better and best" options. Buyers need to evaluate these
choices carefully as it is sometimes the case that the
"best" (and most expensive) plans offer little or no extra
value for their higher prices.
For the 2011 plan year Medicare required
plans to eliminate their low enrollment plans and to
consolidate duplicative plans. While this has lowered the
overall number of plans available to beneficiaries in 2011,
there are still many, many plans to choose from and their
differences are now more transparent to consumers.
SOURCES OF PART D COVERAGE
Medicare doesn’t administer Part D directly. It contracts
with private companies that are approved to sell Part D
insurance coverage. There are two main sources of Part D
PDPs (Prescription Drug Plans)
– these are stand-alone companies that sell prescription
drug coverage only. They do not offer hospital or medical
PDP plan sponsors have a four-digit identifier that begins
with the letter "S." The different plan options
offered by the sponsor each have a unique three-digit suffix
identifier. For example, in 2011 United HealthCare sponsors
the AARP Preferred Plan (S5820-002).
MA-PDs (Medicare Advantage Prescription Drug Plans) – these plans offer hospital, medical and
prescription drug coverage under a single policy. Medicare
Advantage plans are sometimes called "Part C" of Medicare.
There are different types of MA-PDs, e.g., including HMOs,
PPOs, PFFS plans, and SNPs). Beginning in 2011, plans need
to identify their plan type in their plan names. People
who wish to enroll in a Medicare Advantage plan must take
their prescription drug coverage from the same plan, unless
they are enrolled in a PFFS that does not offer prescription
MA-PD plan sponsors have a four-digit identifier that begins
with the letter "H." The various plan options
offered by the plan sponsor each have a unique three-digit
suffix. For example, in 2011 Anthem sponsors the MediBlue
HMO Plus Plan (H5854-002).
MA-PD Plan Types
(Health Maintenance Organization)
These plans follow a "gatekeeper" model.
Members must choose a primary care physician
(PCP) from the plan’s network of providers.
Members may not disenroll from the plan if their
PCP leaves the network. Members may not see a
specialist without a referral from their PCP.
Members must use network providers or the plan
will not cover the service. Individuals who
belong to an HMO type MA-PD must take their
prescription drug coverage through their HMO
plan, not a separate PDP.
(Preferred Provider Organizations)
Members must choose a primary care physician
(PCP) but do not need a referral to see a
specialist. They may seek treatment outside the
plan’s network of providers but will pay more if
they go out-of-network. Individuals who belong
to a PPO type MA-PD must take their prescription
drug coverage through their PPO plan, not a
(Private Fee for Service Plan)
Until 2011, these plans did not have to
have a network of providers. Members could see
"any willing provider" that would accept the
plan’s terms and conditions of payment for
specific services. As a result of 2008 MIPPA
legislation, PFFS plans now need to have
provider networks. In 2011 quite a few PFFS
plans left the market in response to this
mandate. Some PFFS plans offer drug coverage
and some do not. Members in PFFS plans that do
not offer drug coverage may get their
prescription drug coverage through a PDP.
(Special Needs Plan)
These plans are only available to the
following populations with special needs: 1.
Dual eligibles (people with Medicare and
Medicaid); 2. Institutionalized individuals
(e.g., in nursing homes); 3. People with certain
diagnoses (e.g., diabetes, cardiovascular
disease). SNPs are required to offer case
management services targeted to their
populations’ special needs. Individuals who
belong to a SNP must take their prescription
drug coverage through their SNP plan, not a
Not all Medicare Advantage plans offer prescription drug
coverage. Some offer only hospital and medical coverage,
with no prescription drug coverage. These are "MA" plans
(as opposed to "MA-PD" plans).
MA plans are only appropriate for people who have
prescription drug coverage from some other source, such as
the Veteran’s Administration (VA). Members of these plans
may NOT enroll in a PDP for their prescription drug
coverage. Aside from PDPs, MA-PDs and SNPs, there is
another source of Part D coverage.
Employer or Union Sponsored Part D Retiree
- Employers and unions may offer Part D coverage to their
Medicare-eligible employees and retirees through their own
MA-PD plans. These plans are only available to eligible
employees and retirees and are not open to the public.
These plans may have a four-digit identifier that begins
with the letter "E" or a three-digit suffix "800 –
series" number. Employer sponsored Part D plans must follow
all of the same rules as commercial Part D plans. Likewise,
members of these plans have the same rights as members of
RETIREE DRUG SUBSIDY
Employers and unions that offer their
retirees prescription drug coverage that is actuarially
equivalent to (as good as or better than) Part D may qualify
for a federal Retiree Drug Subsidy (RSD). The RDS became
available in 2006, with the advent of Part D, to encourage
employers and unions to continue to offer high quality
prescription drug coverage to their Medicare eligible
retirees. The 28% federal subsidy helps to defray the
employer’s/union’s cost in providing coverage.
Beneficiaries enrolled in employer or union plan that
receives an RDS cannot enroll in Part D.
ELIGIBILITY FOR PART D
Anyone with Medicare is eligible to enroll
in a Part D plan. To enroll in a PDP, the individual must
have Part A OR Part B. To enroll in an MA-PD, the
individual must have Part A AND Part B.
Enrollees must live in (have a permanent residence in) their
plan’s service area. In the case of homeless persons, the
following may be used as a permanent residence: a Post
Office box, the address of a shelter or clinic, or the
address where the person receives mail such as Social
PDPs are national plans, but MA-PDs have
delineated regions, sometimes by state, sometimes by
counties within states. For this reason, MA-PDs may not be
appropriate for those who travel a great deal or who
maintain summer and winter residences in different areas of
the country. NOTE: Beginning in 2011, some MA-PDs offer
"passport" plans that allow members to obtain benefits
outside their normal service areas.
Individuals who reside outside the United
States* are not eligible to enroll, but may do so upon their
return to the country. Incarcerated individuals may not
enroll in Part D, but they may enroll upon release from
prison. People with end-stage-renal-disease (ESRD) may not
enroll in an MA-PD. (But they may not be disenrolled if
they develop ESRD while a member of the plan.)
There are no other eligibility restrictions
or requirements for Part D.
*The United States is defined as the fifty federated states,
plus the District Of Columbia, American Samoa, Guam, the
Northern Mariana Islands, and Puerto Rico.
PART D COVERED DRUGS
Medicare law defines the drugs that are
covered under Part D in relation to their coverage under the
federal Medicaid program. Drugs that are mandatory under
Medicaid may be covered under Part D; drugs that are
optional under Medicaid are excluded under Part D. In
addition, Part D drugs must be:
Approved by the Food and Drug Administration (FDA) for
sale in the US;
Available only by prescription;
Medically necessary and for a "medically accepted
A drug that is for a "medically accepted
indication" is one that is prescribed to treat a disease or
condition (indication) approved by the FDA. A drug that is
prescribed for a condition that is not approved by the FDA
is considered to be prescribed "off label." Off label drugs
may be covered only when support is found in one of three
compendia named in law or, in the case of anti-cancer drugs,
in peer reviewed journals.
Plans must provide coverage to
Medicare-eligible individuals who reside in long-term care
facilities and must offer dosages and forms of drugs that
are common in these settings. Drugs used to treat opioid
dependence may be covered when medically necessary.
LTE-DESI (Less than Effective Drug Efficacy Study) drugs are
Most commercially available vaccinations,
including the shingles vaccine, have been covered by Part D
since 2008. The amount paid for the vaccination includes a
fee for administration of the injection.
Commercially available combination
prescriptions that contain at least one Part D drug
component are considered Part D drugs. In extemporaneous
compounds, only the component(s) that meet the condition of
a Part D drug may be covered.
Starting in 2011, drug manufacturers are
required to enter into an agreement with CMS to provide a
50% discount on brand name drugs purchased during the Donut
Hole. Drugs produced by manufacturers that do not sign such
agreements will not be covered under Part D, even if they
otherwise meet the definition of a Part D drug. All
manufacturers have signed agreements for 2011.
Part D plans are not required to cover all
Part D drugs. They may establish their own formularies,
which must include categories and classes of drugs that
cover all disease states. Formularies may not be
discriminatory, i.e., designed to discourage the enrollment
of certain beneficiaries. A formulary is not considered
discriminatory if it:
Follows the model formulary in the US Pharmacopeia;
Includes at least two drugs in 146 categories of drugs;
Covers all or "substantially all" drugs in the following
protected classes of drugs: anti-cancer;
anti-psychotic; anti-convulsant, anti-depressants,
anti-psychotic, immuno-suppressant, and HIV and AIDS
CMS monitors the sufficiency of plan
formularies, including the placement of drugs in tiers and
the application of utilization management restrictions in
relation to industry best practices.
People are limited to the drugs on their
plan’s formulary, but may request an exception to have a
non-formulary drug covered. If a plan approves a
non-formulary drug through the exceptions or appeal process,
the plan may charge a higher price for the drug by placing
it at a higher tier. For example, a plan may indicate that
all non-formulary drugs approved by exception or appeal will
be placed at Tier 3 or 4. Non-formulary drugs also do not
count toward the "true out-of-pocket" ("TrOOP") amount
required to get out of the Donut Hole, unless approved by
exception or appeal. The obstacles to obtaining
non-formulary drugs emphasize the importance of choosing a
plan with a formulary compatible with the individual’s
Certain drugs are optional under the
Medicaid program, and therefore are not coverable (excluded)
under Part D. Excluded drugs include:
Barbiturates and benzodiazepines. (Starting in 2013,
benzodiazepines will no longer be excluded; in addition
barbiturates used in the treatment of epilepsy, cancer
or a chronic mental disorder will be covered. Starting
in 2014, barbiturates will no longer be excluded.)
Over-the-counter drugs (even if they are prescribed by a
for weight loss or gain, even if used for non-cosmetic
purposes, such as to treat morbid obesity. Note that
drugs to treat AIDS wasting and cachexia are not
considered to be for cosmetic purposes and are therefore
and cold preparations, when prescribed for symptomatic
relief only, without underlying medical indication;
Erectile dysfunction drugs, except as medically
necessary and approved by the FDA to treat conditions
other than sexual or erectile dysfunction;
Cosmetic and hair growth drugs. Note that drugs to
treat acne, psoriasis, rosacea and vitiligo are not
purchased in another country;
Vitamins and minerals, except niacin products, Vitamin D
analogs (when used for a medically accepted indication),
prenatal vitamins and fluoride preparations.
that may be covered under Part A or Part B of Medicare,
even if coverage is not actually available (e.g.,
because the individual has a Part A or B deductible, or
does not yet have Part B.)
Note the important distinction between
non-formulary and excluded drugs. Non-formulary drugs are
coverable under Part D but are not on a particular plan’s
formulary. For example, Plan A may only the prescription
forms of Prevacid and Nexium (or their generics) to treat
acid reflux, when Plan B may only cover the prescription
forms of Protonix and Zantac (or their generics).
Excluded drugs are not coverable under Part
D, but may by offered as a supplemental benefit in some
enhanced plans, e.g., some plans cover certain barbiturates
and benzodiazepines. Members may not appeal the denial of
excluded drugs and their cost will not count toward TrOOP.
In addition, some states may continue to provide coverage of
excluded drugs for their dual eligible and SPAP populations.
Network Pharmacies and Mail Order
Plan members are required to use pharmacies
within the plan’s network of pharmacies. (Exceptions may be
made for emergencies.) Plans, in turn, are required to offer
their members adequate access to retail, mail order, home
infusion and long-term care pharmacies. Plans are not
required to contract with all long term care pharmacies but
CMS expects that they will do so for their members who are
in a long term care facility. Member costs can vary,
depending upon the network pharmacy they use. Some network
pharmacies have the status of "preferred" network
pharmacies, where members can obtain better prices. Plans
may encourage their members to use mail order 90-day
supplies, but they must have at least one retail pharmacies
where members can obtain a 90-day supply. Consumers should
enter into mail order with caution as mail order co-pays are
not always less expensive. In fact, if the full cost of a
drug is more using mail order, the member will enter into
the Donut Hole faster, even if co-pays are the same as
retail. As indicated below, in order to get credit toward
TrOOP, members must use network pharmacies, which keep track
of member purchases.
Utilization Management Restrictions
Part D plans are permitted to impose
restrictions on certain formulary drugs in order to control
costs. These cost cutting tolls are collectively known as
utilization management restrictions. They are usually
applied to more expensive drugs or those that have abuse
potential. Pain medications, for example, nearly always
have one or more of the following type of restrictions.
Prior Authorization – The physician must "justify"
the prescription to the plan and explain why the
medication is medically necessary as prescribed. If the
plan continues to deny the medication it may be
necessary to rile an appeal.
Quantity Limits – The plan may limit the dosage
allowed over a specified period, e.g., x milligrams over
a 25-day period. Such dosage restrictions are often an
issue for chronically ill individuals who take high
dosages of pain medications on a maintenance schedule.
These cases often need to go to appeal.
Step therapy (sometimes called the "fail first"
requirement, the requirement that a member try and fail
other specified drugs before the plan will approve the
prescribed drug). Plans may require a trial of up to 90
days on a different medication, which may be completely
untenable for some patients.
Members and potential members of a plan may
review the plan’s utilization management restrictions on
particular drugs in the plan’s formulary, website or the
Medicare Plan Finder at
www.medicare.gov. These restrictions should be taken
into consideration when choosing a plan.
In addition to utilization management
restrictions, all plans also impose safety edits at the
point-of-sale. These may include but are not limited to
over-utilization (early refill), age/gender
contraindications, drug-drug interactions, therapeutic
duplication, incorrect dosage or duration of therapy, etc.
Plans generally change their formularies
each year (making it important to review one’s plan choice
annually). Plans may also change their formularies mid-year
but must generally obtain CMS approval to do so. Current
plan members are protected from some of these changes under
Unless the FDA declares a drug to be
unsafe, or a drug is taken off the market by the
manufacturer, Part D plans may not remove drugs from their
formularies, or make changes to the cost sharing status of a
drug, from the beginning of the AEP (October 15) through the
first 60 days of the plan contract (calendar) year.
Plans may expand formularies by adding
drugs, lowering cost sharing, or removing utilization
management tools, at any time of the year.
After March 1, Part D plans may amend their
formularies as summarized below. CMS approval and notice to
members is required for both types of formulary changes.
– While CMS values the stability of plan
formularies, it generally gives positive consideration
to maintenance changes, which are intended to refine the
safety of the Part D benefit, save taxpayer money and
protect the interest of beneficiaries throughout the
plan year. Maintenance changes include: removal (or
change in tier placement) of a brand name drug based
upon the addition of a new grade A generic at a lower
cost to members; removal (or change in tier placement)
of a formulary drug in light of new clinical evidence;
adding new utilization management restriction(s) based
on a new FDA "black box" warning; removal of a drug
based on an FDA market withdrawal notice; removal of a
non-Part D drug mistakenly included on the formulary.
Plans may notify members of maintenance changes at the
same time that they submit the changes to CMS for
– Changes to formularies other than maintenance
changes require the pre-approval of CMS. These changes
can include changing the status of "preferred" vs.
"non-preferred" drugs, adding utilization restrictions,
or increasing cost sharing (for reasons other than those
given for maintenance changes). After providing
justification to and receiving approval from CMS, the
plan is required to provide members with 60 days written
advance notice. Further, members who are already taking
the drug in question are exempt from the formulary
change for the rest of the calendar year.
Brand name drugs have patents that expire
after a number of years. When these patents expire, other
manufacturers are free to develop generic versions of these
drugs. To keep Medicare costs low, CMS encourages Part D
plan members to take the less expensive generic drugs. In
fact, the pharmacy may substitute a generic drug for a brand
name drug at the point of sale because these formulary
changes fall into the category of maintenance changes, which
do not require advance notice to the beneficiary. There is
no transition policy that guarantees a member the right to
continue to receive the brand name drug for the rest of the
year when a generic becomes available.
Members need to read their EOCs carefully
to find out what they need to do to get brand name drugs
instead of generics. Usually, it is necessary to file an
exception or appeal request. To prevail in an exception or
appeal, the physician must document a history of adverse
reactions or ineffectiveness of the generic.
All Part D sponsors must have a transition
process to ensure that newly enrolled members, and other
individuals described below, have access to non-formulary
medications during their first 90 days in a plan. (For
transition purposes, formulary drugs that are subject to
prior authorization or step therapy are treated as
The transition process applies to:
members who enroll during the AEP; (or, depending upon
the plan’s declared transition policy, current enrollees
affected by a formulary change from one contract year to
eligible Medicare enrollees who previously had other
individuals who transition from one Part D plan to
another during the year (as through a Special Enrollment
enrollees in long-term care facilities.
The transition process requires Part D
plans to allow a one-time temporary supply of a
non-formulary drug, during which time the member, his/her
physician, and the plan, can work out an appropriate change
to another drug, or commence an exception request to obtain
the non-formulary drugs. The plan must provide a written
notice to all members who receive a transition fill within
three business days of the temporary fill.
For members living in the community, the
temporary supply is a one-time fill for at least 30 days of
medication (unless the script is written for fewer days).
For members living in long-term care facilities, the
temporary supply may be for up to 31 days, and may be
renewed as necessary during the entire length of the 90-day
Depending upon the circumstances of the
individual, the transition period may be extended beyond the
THE PART D STANDARD BENEFIT
At a minimum, plan sponsors must offer a
"standard benefit" package mandated by law. The standard
benefit includes an annual deductible and a gap in coverage
known as the "donut hole." Sponsors may also offer
plans that differ from – but are actuarially equivalent to –
the standard benefit. Finally, they may also offer
"enhanced" plans that provide benefits in addition to the
standard benefit. Typically, the enhanced plans offer some
coverage during the donut hole.
The Standard Benefit is defined in terms of
the benefit structure, not the drugs that must be covered
under the plan.
2011, the Standard Benefit includes an initial Annual
Deductible of $310 (the maximum allowed under law).
This is called the Deductible Phase, or Stage 1.
meeting the deductible the beneficiary pays 25% of the
next $2,530 ($632.50) in formulary drugs. This is
called the Initial Coverage Period or
the plan and the beneficiary have together paid the
Initial Coverage Limit of $2,840 ($310 + $2,530 =
$2,840), the beneficiary has a gap in coverage known as
the "Donut Hole," or Stage 3.
During the Donut Hole the beneficiary pays for 100% of
the next $3,607.50 in formulary drugs. (NOTE: See below
for information on the Donut Hole "Discount" beginning
the beneficiary has spent a total of $4,550 in "true
out-of pocket costs" (TrOOP) in formulary
drugs ($310 + $632.50 + $3,607.50= $4,550), he/she
enters the Catastrophic Coverage Period,
or Stage 4.
During Stage 4 the beneficiary pays 5% of the cost for
formulary drugs, or $2.50 for generics and $6.30 for
brand name drugs, whichever is greater.
Beneficiaries who meet the $4,550 out-of-pocket
threshold remain in Stage 4 for the rest of the calendar
year. The process begins over again the next year.
Medicare does not establish premium amounts
for plans. Instead, premiums are established through an
annual competitive bidding process and evaluated by CMS.
Medicare does establish the maximum deductible amount, the
Initial Coverage Limit, the TrOOP threshold and Catastrophic
Coverage levels every year. The table below shows the
standard benefit each year from 2006 – 2011.
standard Part D Benefit 2006-2011
Member pays 25% of
(25% = $500)
(25% = $533.75)
(25% = $558.75)
(25% = $601.25)
(25% = $630)
(25% = $632.50)
(what the member
AND the plan have spent)
($250 + $2000)
($265 + $2,135)
($275 + $2,235)
($295 + ($2,405)
($310 + $2,520)
Member pays 100% of
(starting in 2010,
(Starting in 2011
prices are discounted, see below)
when member (NOT plan) has spent a total
($250 + $500 +
($265 + $533.75 +
($275 + $558.75 +
($295 + $601.25 +
$630 + $3,610)
($310 + $632.50 +
Cost sharing during
or 5% (whichever is
or 5% (whichever is
or 5% (whichever is
or 5% (whichever is
(whichever is higher)
Print this chart in
Alternatives to the Standard Benefit
Most plans do not follow the defined
Standard Benefit (DS) model. Medicare law allows plans to
offer actuarially equivalent or enhanced plans. While
structured differently, these alternative plans cannot
impose a higher deductible or higher initial coverage limits
or out-of-pocket thresholds. The value of benefits in an
actuarially equivalent plan must be at least as valuable as
the Standard Benefit.
CMS distinguishes two types of actuarially
Actuarially Equivalent (AE) plans
– have the same deductible as the standard benefit but
have different cost-sharing. Instead of a flat 25 %
co-insurance during the Initial Coverage Period, they
may employ a system of tiered co-payments on groups of
Basic Alternative (BA) plans
– have a smaller deductible, with or without different
cost sharing, such as tiered cost sharing.
In addition, Enhanced Plans (EA)
offer a benefit package more generous than the Standard
Benefit. Most typically, they include coverage of some
drugs during the Donut Hole. They may also cover certain
widely used drugs that excluded under Medicare law, e.g.,
Xanax or Valium.
Instead of the flat 25% co-pay during the
Initial Coverage Period in standard benefit plans,
alternative and enhanced plans may instead employ a system
of tiered cost sharing. In a tiered model, various drugs
are assigned to different drug tiers and will cost more or
less than other drugs depending upon their tier placement.
Cost sharing in various tiers may take the form of co-pays
(a flat dollar amount), or co-insurance (a percentage of
When Part D began in 2006, drug tiers were
fairly straightforward. That is: generic drugs were the
least expensive at Tier 1; "preferred" brand name drugs were
more expensive at Tier 2; non-preferred brand name drugs
were still more expensive at Tier 3, and specialty drugs
were at Tier 4. For example, cost sharing might appear as
brand name drugs
brand name drugs
Since 2006, however, plans have taken full
advantage of their ability to define their own tiers. Some
plans have four tiers while others now have five or even
six. The placement of drugs within tiers also varies
among plans. For example, the same generic may be a Tier
1 drug in one plan, a Tier 2 drug in another plan, and a
Tier 3 drug in yet another plan. Adding to the confusion,
some plans make tier distinctions between "value" and
"regular" generics, and may further classify (and price
accordingly) "value," "preferred," and "non-preferred"
brand name and generic drugs. Finally, while some plans
offer coverage of certain drugs during the Donut Hole,
cost sharing for the same drug may be higher during the
donut hole. For example, a generic drug that costs $7
during the Initial Coverage Period may cost $10 during the
This lack of standardization among the
tiered plans means that it is virtually impossible to
compare plans and Part D cost-sharing without the use of
CMS’s on-line Plan Finder tool. While the Plan Finder is
relatively easy to use, Medicare beneficiaries who lack
confidence in their computer skills should ask family,
friends, their local pharmacy, or their area SHIP agency to
help them compare plans on the Plan Finder.
The Donut Hole
The Donut Hole is a gap in coverage common
to Standard, Alternative and Enhanced Plans. Unless their
plan offers some coverage during the gap, beneficiaries will
pay 100% for drugs during the Donut Hole (subject to a
discount beginning in 2011 – see below). They will continue
to pay out-of-pocket until their total expenditures
(deductible co-pays and costs during the Donut Hole) meet
the out-of-pocket threshold ($4,550 in 2011).
While a few plans offer coverage of drugs
during the Donut Hole, such coverage is generally limited to
generics. Few plans cover brand name drugs during this
period. Further, co-pays for drugs covered during the Donut
Hole may be higher than they are in the Initial Coverage
beneficiaries reach their out-of pocket threshold (their "true
out-of-pocket" (TrOOP) costs), they move out of the Donut
Hole and into Catastrophic Coverage.
The only expenses that count toward TrOOP are formulary
drugs purchased by the member, the member’s family,
charity, an SPAP or ADAP program, the Indian Health Service,
or the Part D LIS ("Extra Help").
Payments for premiums, non-formulary drugs
(unless approved by exception or appeal), drugs purchased
outside the US, and drugs paid for by other insurance do
not count toward TrOOP.
The member’s Part D plan keeps track of
TrOOP expenditures so it can determine when the member
qualifies for Catastrophic Coverage. Therefore, in order to
get credit for their drug costs during the Donut Hole, it is
imperative that members use plan network pharmacies and show
the pharmacy their plan membership card.
Plans are required to send their members an
Explanation of Benefits (EOB) for every month that the
member uses plan services. The EOB shows what the member,
the plan, and others paid for drugs during the period. The
EOB also tells the member what stage of coverage he/she is
in, and how much more the member needs to spend to move to
the next stage of coverage.
For some individuals, drug costs during the
Donut Hole present an extreme financial hardship. In some
cases, a single medication may costs hundreds, even
thousands, of dollars. Paying for such an expensive drug
during the Donut Hole will help move the member toward
eligibility for Catastrophic Coverage. However, coming up
with this amount of money all at once – even for a critical
medication - may be impossible for some people. This
not-uncommon scenario means that some people simply do not
take their medications during the Donut Hole.
There are programs to help people with
their Part D costs, including some that provide coverage
during the Donut Hole. The Part D Low Income Subsidy (LIS)
is one such. Medicare Savings Programs (MSP) or State
Pharmacy Assistance Programs (SPAPs) may also provide
assistance and generally have more generous income and asset
limits than the LIS. Other sources of help include pharmacy
discount cards, drug manufacturer Patient Assistance
Programs (PAPs), and insurance company discount programs.
For a complete listing of many drug assistance programs see
our article "Do
you Need Help to Get Prescription Drugs?"
The Donut Hole Discount
The Donut Hole will gradually be phased out between 2010 and
2020. In the first phase, eligible individuals who reach
the Donut hole in 2010 will receive a one-time $250 rebate
check. The check is mailed about 45 days from the end of
the quarter the member entered the Donut Hole.
The second phase, in 2011, will bring
dramatic changes to the Donut Hole. Eligible plan members
who purchase formulary drugs during the Donut Hole will get
a 50% discount on brand name drugs and a 7% discount on
generic drugs. These discounts will gradually increase
each year until everyone is paying a flat 25% for drugs in
The discounts will be given right at the
pharmacy - members will not have to fill out forms or do
anything to get the discount. Members will have to pay a
small dispensing fee (cost to the pharmacy for filling the
drug), which will not be discounted.
The full amount (negotiated price) of
brand name drugs (not the discounted amount paid by the
member), will count toward TrOOP. This means members
will not need to spend as much to get out of the Donut Hole
beginning in 2011. For generic drugs, the only actual
amount paid for the drug (93%) will be applied toward TrOOP.
People on the Part D Low Income Subsidy
(LIS) are not eligible for the $250 rebate or the discounts
because they already have very low cost sharing during the
Donut Hole. But people enrolled in an SPAP (State
Pharmaceutical Assistance Program) ARE eligible for the
rebate and discount.
The discount is only available if the
drug’s manufacturer has signed an agreement to participate
in the Discount Program. Drugs sold by manufacturers who do
not sign an agreement will not be covered under Part D and
cannot be requested by exception.
The discount is only available if Medicare
Part D is the primary payer. If there is secondary
insurance (such as SPAP), it will pay after the Part D
discount has been applied. If the plan already offers
coverage during the Donut Hole, the discount will be applied
to the price of the drug the member would pay under the
plan’s Donut Hole coverage.
If the prescription crosses Part D stages
of coverage, i.e., a "straddle claim," the discount will
only apply to the portion of the drug that is in the Donut
Whether in a standard, alternative or
enhanced plan, with each purchase of formulary prescription
drugs during the plan year (calendar year), plan members
move through the four stages of Part D coverage: the
Deductible Period, the Initial Coverage Period, the Donut
Hole, and Catastrophic Coverage. Beneficiaries experience
different cost sharing as they move through these stages. A
"straddle" claim occurs when a prescription drug crosses
multiple stages of the benefit. For example, the member may
have $400 left in the Initial Coverage Period but needs a
drug that costs $500. His claim, therefore, "straddles" the
Initial Coverage Period and the Donut Hole, therefore the
plan will "prorate" the claim accordingly. In the example
above, the first $400 is subject to a 25% co-pay (assuming
the member is in a standard plan), and the member pays 100%
of the $100 balance.
Calculating what the beneficiary owes is
complicated and trickier still when the plan has tiered
co-pays instead of the standard benefit. a more detailed
discussion of straddle claims, see
Part Covered, Part Not: "Straddle Claims" in Medicare Part D.
For most people, enrollment in Part D is
voluntary. Most people need to select and enroll in a plan
in order to have coverage. There are several Part D
Initial Enrollment Period (IEP) - People can enroll during the 7-month period
surrounding their 65th birthday. For example: the
three months before, the month of, and the three months
after their birth month. (Note: this IEP is the
same as for Part A and Part B.) People who become
eligible for Medicare because of a disability have an
IEP that begins the month they are notified of Medicare
entitlement and continues for three months after. A
second 7-month IEP is available for people who already
have Medicare because of a disability and who turn 65.
Annual Coordinated Election Period (AEP)
[also called the Annual Election Period] – During the
AEP, people can join or change their PDP. Starting in
2011, the AEP runs from October 15 to December 7 of
every year, for coverage beginning the following January
1. (Previously the AEP ran from November 15 – December
31). Members are "locked in" to their chosen plan for
the rest of the calendar year and cannot change plans
unless they qualify for a
Special Enrollment Period).(additional
Initial Coverage Election Period (ICEP) –
During the ICEP people can join or change their MA-PD.
Starting in 2011, the ICEP runs from October 15 to
December 7 every year, for coverage on January 1 of the
following year. (Previously, the ICEP ran from November
15 – December 31, like the AEP.) Members are "locked in"
to their chosen plan for the rest of the calendar year
unless they opt for the Medicare Advantage Disenrollment
Period (MAPD) or qualify for a Special Enrollment Period
Medicare Advantage Disenrollment Period (MADP)
– During the MADP, which runs from January 1 to February
15 of every year, people enrolled in a Medicare
Advantage plan (MA-only or MA-PD) can disenroll from
Medicare Advantage, re-join original Medicare, and
enroll in a PDP for drug coverage. (People cannot just
change their PDP during this period.) If the MADP
election is taken in January, the new coverage will be
effective February 1. If the election is taken in
February, the new coverage will begin on March 1.
that the MADP is new in 2011 and
replaces the former Open Enrollment Period
(OEP), which ran from January 1 to March 15
and allowed people in Medicare Advantage plans to switch
to another Medicare Advantage plan or return to original
Medicare, provided they did
not add or drop prescription drug coverage during this
General Enrollment Period (application to Part D)
– People who enroll in Medicare Part B (whether or not
they have Part A) during the Part B General Enrollment
Period (January 1 – March 31), may enroll in Part D
between April 1 – June 30, with coverage beginning July
Members can be involuntarily disenrolled from a plan if the
plan terminates, or the member loses eligibility for Part D,
moves from the plan’s service area, engages in behavior that
makes it difficult for the plan to provide services, or
fails to pay premiums timely. Note that the plan cannot
terminate a member for non-payment of premiums if premiums
are being withheld from Social Security. Plans must also
provide a two month grace period before terminating a member
for non-payment. The notice period being when the plan
notifies the member that payment is due.
Exceptions to Voluntary Enrollment
Enrollment in Part D is generally voluntary, however,
some people are required to enrolled, and others should not
People who have Medicare and who receive assistance
under certain federal programs (Medicaid, Medicare
Savings Programs, SSI or the Part D Low Income Subsidy)
are required to enroll. If they do not self-enroll,
Medicare will automatically enroll them in a plan.
People enrolled in their state’s State Pharmacy
Assistance Program (SPAP) are also required to enroll.
Non-LIS eligibles who do not have
creditable coverage, and who do not enroll in Part D when
they are first eligible to do so, may have a
Late Enrollment Penalty and may have to wait up to 12
months to enroll in a plan.
Creditable coverage is prescription drug
coverage that is as actuarially as good as, or better than,
Part D coverage. All insurers are required to notify their
Medicare-eligible members of their plan’s creditable
coverage status every year. This notice must be in writing
and it must be received before the AEP begins on October 15.
Examples of creditable coverage include
TriCare (coverage for military members and their families),
Veteran’s (VA) benefits, and Federal employee group health
insurance. Many Medigap policies that offer prescription
drug coverage are not creditable. Individuals with Medigap
policies should check with their plans.
Individuals who have creditable coverage
are not required to enroll in Part D and may not find it to
their advantage to do so. This is because they may lose the
hospital and medical coverage if they enroll in Part D.
They should check with their plan’s Benefit Administrator
before deciding to enroll in Part D.
Individuals who involuntarily lose
creditable coverage are entitled to a Special Enrollment
Period. They have 63 days in which to enroll in a Part D
NOTE: Individuals who do not receive a
notice or creditable coverage, or who receive an incorrect
notice, may qualify for a SEP that allows them to enroll in
Part D outside the AEP. Complaints regarding lack of or
inadequate notice should be reported to 1-800-MEDICARE.
The Late Enrollment Penalty (LEP)
Unless exempt, there is a penalty for not
enrolling in Part D when first eligible to do so. Those
exempt from the penalty include individuals who:
creditable coverage, or
Qualify for the LIS, or
eligible for a Special Enrollment Period because they
were impacted by Hurricanes Katrina, Wilma or Rita
The penalty is 1% of the national base
monthly premium ($32.34 in 2011) or every full month the
individual could have been but was not enrolled. The base
calculation changes yearly, based on the
average national base premium amount. The LEP cannot go
back farther than June 2006
CMS calculates the penalty amount, which is
collected by the Part D plan. The penalty is a "lifetime"
penalty and is added to the person’s monthly premium. Note,
however, that if a penalty is imposed before the individual
is 65, the slate is "wiped clean" when she/he turns 65.
Mr. D. was eligible to enroll in January 2010 but did not
enroll until January 2011. Assuming he is not exempt, he
will incur a 12-month (12%) penalty. Using a base
calculation of $32.24, his penalty is .01 x $32.24 x 12
(months) = $3.86 monthly penalty. Assuming he is over 65,
this amount will be added to his monthly Part D premium for
If Mr. D had been eligible to enroll when
Part D began in January 2006, and does not enroll until
January 2011, his penalty will be calculated from June 2006
through December 2010. His penalty will be 55 months, or 1%
x $32.24 x 55 (months) = $17.73 per month.
There is a process to request
reconsideration if a late enrollment penalty appears to be
imposed in error. Medicare contracts with an independent
review entity (Maximus in 2010) to conduct these
reconsiderations and the decision is final. The penalty
must be paid during the time the penalty is being
reconsidered, which can take many months. If
reconsideration is granted, the beneficiary will be
reimbursed for erroneous penalty charges assessed.
Special Enrollment Periods
Special Enrollment Periods allow people to
enroll, disenroll or change plans outside the AEP, the ICEP
and the MADP. The most commonly available are listed here.
All SEPs require CMS approval, some on a case-by-case basis.
Effective date/length of SEP
All LIS Eligibles
Anyone eligible for the Part D Low Income
Subsidy (LIS) may change plans at any time. This
includes full benefit dual eligibles, people on
a Medicare Savings Program (MSP), i.e., partial
duals, people on SSI with Medicare, and people
on LIS only.
The plan change is effective the first of the
month following the month of change. This
effectively limits this SEP to twelve times per
Loss of Medicaid Eligibility
Applies to people who lose eligibility as a full
or partial dual eligible.
Two months after the month of notification
Loss of LIS Eligibility
(1) Applies to non-dual eligibles that lose LIS
because they are deemed ineligible for the
(2) Also applies to people who lose LIS
eligibility during the year.
(1)Have a SEP from January through March. (2)
Two months, including the month they are
Applies to people who move into, live in, or
move out of an institution such as a long term
care facility (NF or SNF), an intermediate care
facility for the mentally retarded (ICF-MR), a
psychiatric, rehabilitation hospital or unit,
or long term care hospital, or a "swing-bed"
hospital. It does not apply to people in
acute care hospitals.
Lasts as long as the person lives in the
institution and for two months following
Change of residence
This SEP includes people who: make a permanent
move outside their plan’s service area; have a
new plan choice available to them as a result of
their move within the plan’s service area; move
back to the US after living outside the country;
and people who were released after a period of
Two months from the date the person notifies the
plan, or returns to the US, or is released from
jail. Onset is later if the person does not
notify the plan, and the plan learns of the move
through CMS or the Post Office.
People who belong to a State Pharmaceutical
Assistance Program (SPAP)
May make one change during the calendar year.
Involuntary loss of creditable coverage
The person involuntarily loses creditable
coverage, i.e., coverage that is as good as
Medicare Part D coverage. (Note that failure to
pay premiums does not constitute involuntary
loss.) Also includes changes to other coverage
such that it is no longer creditable.
May enroll in Part D two months from the loss of
creditable coverage, or notification of the
loss, whichever is later.
Not accurately informed of creditable coverage
Applies to people who were misinformed of their
existing plan’s creditable coverage status, by
an entity required to provide such notice.
Enroll in or maintain other creditable coverage
Such as VA or TriCare. (But note that it is
permissible to have both Part D and VA or
May disenroll from Part D anytime.
EGHP (Employer Group Health Plan)
(1) Applies to people who wish to leave employer
or union coverage, including COBRA, or
(2) Applies to people who wish to disenroll from
Part D to take employer or union sponsored of
(1) SEP to join a Part D plan lasts for two full
months after employer/union/COBRA coverage ends.
(2) During the EGHP’s "open season" or at other
times that the employer or union allows.
SEP related to Special Needs Plans (SNPs)
(1) Applies to people who have a severe or
disabling condition, and wish to join a SNP that
serves people with that condition, or
(2) Enrolled in a SNP and no longer have the
condition that qualifies as a special need.
(1) Anytime, but limited to one opportunity only
(2) Up to 3 months after the SNP’s grace period
Applies to people who enroll in a Medicare
Advantage plan during the ICEP surrounding their
65th birthday, and who wish to return
to original Medicare and join a PDP
Anytime during the 12-month period following
their enrollment in the MA plan.
SEP related to dropped Medigap policy
Applies to people who dropped a Medigap policy
the first time they enrolled in a
Medicare Advantage plan, and who wish to return
to original Medicare and join a PDP.
Anytime during the 12-month period following
their enrollment in the MA plan. Also have a
guaranteed right to purchase another Medigap
policy, provided they are still in 12-month
Marketing Fraud and contract violations.
A person’s enrollment in an MA-PD or PFFS plan
is based on false or misleading marketing
materials or agent behavior. May disenroll from
existing plan and join a different MA-PD, or
return to original Medicare and join a PDP
SEP begins when CMS determines that a violation
has taken place. SEP may continue up to 90
days. CMS may allow retroactive
SEPs related to PACE (Program of All-Inclusive
Care for the Elderly)
(1) May disenroll from Part D to join a PACE
(2) May disenroll from a PACE plan to enroll in
(2) Up to 2 months after the month of PACE
SEP related to Medicare Cost Plan
Applies to people who wish to disenroll from
their Medicare Cost Plan
Two full months after the month of disenrollment
from the Medicare Cost Plan
Error by Federal Employee
Applies to people who elected not to enroll in
Part D, or who erroneously enrolled in a Part D
plan, due to an error by a Federal employee
May change coverage for 2 full months following
receipt of notice of error from Medicare.
Retroactive Medicaid entitlement
Person is granted full dual status (Medicaid)
with retroactive uncovered months.
The PDP is required to make the enrollment
retroactive to prevent gaps in coverage.
CMS plan sanctions
Plan member is affected by a problem that caused
CMS to officially sanction the plan.
May change plans, determined on a case-by-case
basis. CMS may allow retroactive disenrollment
CMS terminates plan contract
The person is enrolled in a plan whose contract
is terminated by CMS, or whose contracted is
terminated by mutual consent.
Plan must give members 60 days notice. May
switch plans until one full month after the
plan’s contract ends.
Plan’s contract is not renewed, effective
Plan must give members 90 days notice. SEP to
enroll in another plan begins October 1 and ends
January 31 of the following year
How to Enroll, Payment of Premiums, and Other Enrollment
CMS (Medicare) plays a central role in Part
D enrollment and actual enrollment in a plan is not complete
without CMS approval. Enrollment may be accomplished by
calling the plan directly, calling 1-800-MEDICARE,
contacting the area SHIP agency, or using the on-line Plan
Finder tool at
The premium Premiums may be paid directly
to the plan, deducted from Social Security (not recommended
due to on-going problems in administration), or deduction
from a bank account (EFT). Members who wish to change their
method of payment during the year should contact their plan
to make the change but the byword in this exchange is
"patience." Some changes, such as going from Social
Security withholding to "direct pay" status, may take up to
three months. Any change that has not been processed within
three months should be reported to 1-800-MEDICARE.
Individuals may not belong to more than one
Part D plan at a time. In fact, enrollment in one plan
automatically cancels out enrollment in the previous plan.
For this reason, beneficiaries who want to switch plans need
only enroll in their desired plan. Medicare will cancel out
their enrollment in their old plan.
Note that individuals who wish to remain
with their existing plan from one year to the next need do
nothing. Their enrollment will automatically "roll over"
into the next year.
Income Related Premium Increase
Beginning January 2011, people with higher
incomes who pay a higher income-related part B premium will
also pay a higher income-related premium for Part D. The
income thresholds for B and D are the same, i.e., an
individual with a modified gross adjusted income greater
than $85,000 will pay higher B and D premiums. The premium
increase for Part D is called the "monthly adjustment
amount" and it is based on a percentage of the nation base
beneficiary premium as determined by CMS. Social Security
estimates that less than 5% of people will be affected. An
individual with an adjusted gross income of $87,000 per year
would pay a $12 monthly adjusted amount. An individual with
a gross adjusted income over $214,000 would pay $69.10 per
month. The monthly adjustment amount is deducted from the
member’s Social Security, even if the member is paying his
regular Part D premium directly to the plan.
Evidence of Coverage (EOCs)
Shortly after enrolling in a plan, new
members should receive a member card and a contract called
the Evidence of Coverage (EOC). The EOC explains the
member’s benefits under the plan, how to access member
services such as mail order (if it is offered), and how to
access the plan’s grievance and appeal processes.
Along with the EOC, the member should
receive at least an abridged copy of the plan’s formulary
and information how to obtain or access the complete
formulary. The formulary will show not only what drugs are
covered by the plan but what restrictions may apply to some
of those drugs (such as prior authorization, quantity limits
and step therapy).
Returning members (those staying with the
plan for another year) should also receive an EOC and a copy
of the plan’s formulary at the beginning of every new plan
Complaints that a plan has not fulfilled its contract as
described in the EOC should be reported to 1-800-MEDICARE.
Annual Notice of Change (ANOCs)
All plans need to send their existing
members an Annual Notice of Change (ANOC) prior to November
15 each year. Please note that this
date will be changing in 2011.
The ANOC informs members how their plan will change in the
coming year, including any changes that may be made to the
October 15 marks the beginning of the
Annual Election Period (AEP) when people can join or change
their Part D plans. People need to read the ANOC
carefully to decide if they should remain in their existing
plan or look for another during the AEP.
People should not assume that their
existing plan will meet their needs or remain an appropriate
choice in subsequent years. This is because plans make
changes to their costs and coverage every year. It is not
unexpected for costs to increase, but people may not realize
that plans can also remove drugs from their formularies, or
change the pricing of certain drugs, or impose utilization
management restrictions (such as prior authorization,
quantity limits and step therapy) on their drugs in the next
The ANOC is so important that a plan’s
failure to send the ANOC timely is grounds for a Special
Enrollment Period (SEP) that will allow the member to change
plans outside the normal enrollment periods. Complaints
that a plan has not sent the ANOC by the
date above should be reported to
THE MEDICARE SAVINGS PROGRAMS
Medicare Savings Programs help low income individuals to pay
for their Medicare Part A and/or Part B co-pays and
deductibles. There are four Medicare Savings programs, all
of which are administered by state Medicaid agencies and are
funded jointly by states and the federal governments.
Participants in these programs are sometimes called
"partial dual eligibles." Individuals who qualify for a
Medicare Savings program automatically qualify for the Part
D Low Income Subsidy (LIS), which is also known as "Extra
Help." The LIS helps qualified individuals pay their
Part D expenses, including monthly premiums, co-pays and
co-insurance. The LIS also covers people during the
deductible period and the gap in coverage called the "Donut
The LIS The four Medicare Savings Programs
(Qualified Medicare Beneficiary) – Eligible individuals
have countable income up to 100% of the FPL and
countable assets not exceeding $6,600 for an
individual and $9,910 for couples. QMB covers all
Medicare Part A and B co-pays and deductibles, as long
as the recipient uses Medicaid-enrolled providers. (In
some areas this is a significant bar to access as it may
be difficult to find providers who accept Medicaid.)
Note that the program also pays the Medicare Part A
premium for those individuals who do not qualify for
free Part A. A. For individuals who use
Medicaid-enrolled providers, the QMB program is
equivalent to having a Medigap (Medicare Supplement)
policy, often saving them hundreds of dollars each
(Specified Low-Income Medicare Beneficiary) – Eligible
individuals have countable income up to 120% of
the FPL and countable assets not exceeding $6,600
for an individual and $9,910 for couples. SLMB pays the
Medicare Part B premium (between $96.40 and $115.40 per
month in 2011), thereby increasing recipient’s spendable
income each month.
(Qualified Individual, a/k/a Additional Low-Income
Medicare Beneficiary) - Eligible individuals have
countable income up to 135% of the FPL and
countable assets not exceeding $6,600 for an
individual and $9,910 for couples. Like SLMB, QI/ALMB
pays the monthly Part B premium. Unlike SLMB, which is
an entitlement program, QI/ALMB is subject to renewed
federal funding each year.
(Qualified Disabled and Working Individuals) – This
program pays the Medicare Part A premium for disabled
individuals who have lost their Part A benefits because
they returned to work. Eligible individuals may have
countable income up to 200% for the FPL and countable
assets not exceeding $4,000 for an individual and $6,000
for a couple. They must be eligible to purchase Part A
and may not be covered by Medicaid.
NOTE: Calculation of applied income and
assets follow SSI rules, but states may liberalize these
rules for their residents. For example, some states
have raised or eliminated the asset test and have
significantly increased unearned income disregards as a
means of effectively raising program income limits.
Interested individuals should contact their state Medicaid
agency for more information and applications.
THE LOW INCOME SUBSIDY
The Low Income Subsidy ("LIS"), also known as "Extra Help,"
is administered by the Social Security Administration (SSA)
and helps qualified individuals pay their Part D expenses,
including monthly premiums, co-pays and co-insurance. The
LIS also covers people during the deductible period and the
gap in coverage called the "Donut Hole."
Deemed and Undeemed Eligibles
Some people automatically qualify for the LIS and do not
have to apply for the program, regardless of their income or
asset levels. This "deemed" group includes:
Full Dual eligibles (people on Medicare and full
Partial duals (people on a Medicare Savings Program:
QMB, SLMB and QI)
SSI recipients who have Medicare but not Medicaid.
Other individuals (the "undeemed") may qualify if
their income and assets are within LIS program limits. Note
that income and asset rules were relaxed, making it easier
to qualify for assistance, in 2011. Calculation of income
and assets follow SSI rules.
Full and Partial Subsidies
There are "full subsidies" and "partial subsidies."
A full subsidy means the monthly Part D premium is paid
in full if the individual enrolls in a "benchmark" plan. A
benchmark plan is a PDP that offers basic (rather than
enhanced) coverage and has a premium below the monthly
regional benchmark threshold, e.g., $33.66 in Connecticut in
2011. [link to national chart]
A partial subsidy means the individual’s premium
obligation will be calculated on a sliding scale. The LIS
will pay 25%, 50% or 75% of the regional benchmark
threshold, depending on income level.
Both full and partial subsidies offer cost sharing
assistance for the part D deductible, low co-pays for drugs,
coverage during the Donut Hole, and reduced co-pays for
drugs during the Catastrophic Coverage Period.
All LIS beneficiaries who wish to enroll in an enhanced
(rather than benchmark) plan may do so, provided they pay
the excess premium out-of-pocket.
LIS Income and Asset Limits 2011for Undeemed Individuals
Countable Assets Not Exceeding
135 – 150% FPL
LIS Cost Sharing for Deemed Individuals
Full Duals in an institution
(does not include individuals in assisted living
or on a home and community based waiver program)
Full duals with income at or below 100%
$1.10 (generics) and $3.30 (brand name) through
the Donut Hole; $0 in catastrophic coverage
Full duals with income above 100% FPL and
all other deemed LIS eligibles, including MSP
$2.50 (generics) and $6.30 (brand name) through
the Donut Hole; $0 in Catastrophic Coverage
LIS Cost Sharing for Undeemed Individuals
$2.50 (generics) and $6.30 (brand name) through
the Donut Hole; $0 in Catastrophic Coverage
15% through Donut Hole; $2.50 and $6.30 in
Once granted, the LIS continues for a year. This provision
is extremely helpful to dual eligibles that go on a Medicaid
"spenddown" sometime during the year. While the spenddown
causes them to lose full dual status, they continue to get
prescription drugs at low cost due to the continuing LIS
SSA redetermines eligibility for the LIS every year. A
portion of the universe of undeemed individuals is selected
for redetermination every August. Individuals deemed
eligible for the LIS between January 1 and June 30 are
deemed eligible for the rest of the year. Individuals
deemed eligible between July 1 and December 31 are deemed
eligible for the rest of the year and all of the following
calendar year. Notices of eligibility (if the subsidy is
reduced or terminated) go out in the fall. No notice is
sent to those who remain eligible at the same subsidy level
for the following year.
and Other LIS Eligibles
Until 2006, when Part D began, full benefit duals in most
states received prescription drug coverage through their
state’s Medicaid programs. Since the advent of Part D,
prescription drug coverage for full benefit duals is now
provided by private Medicare Part D plans. (Some states
continue to provide coverage of Part D excluded drugs for
their dual eligibles.)
Auto-Enrollment of Duals
To ensure that duals do not "slip though the cracks," those
that fail to enroll in a Part D plan on their own are
auto-enrolled by Medicare. To ensure that full benefit duals
are able to afford Part D costs, they are also deemed
eligible for the Part D Low Income Subsidy, which covers
premiums (in full if the person is enrolled in a benchmark
plan), deductibles and co-pays, and provides coverage during
the Donut Hole.
Prescription drug plans that offer basic (vs. "enhanced")
coverage, and have a monthly premium set below each state’s
regional benchmark thresholds, are referred to as
"benchmark" plans. Full benefit duals (and all other
LIS-eligibles) are encouraged to enroll in benchmark plans,
but they may enroll in non-benchmark plans if they pay the
premium in excess of the benchmark threshold. Often,
benchmark plans have less robust formularies than
non-benchmark, and it may be worthwhile for the beneficiary
to pay the excess premium out-of-pocket to obtain the drugs
s/he needs. Dual eligibles (and all other LIS-eligibles)
have a continuous SEP that allows them to enroll in more
compatible plans at any time. Enrollment in the new plan is
effective the first day of the month following the month of
Newly granted duals are created when Medicaid recipients
become eligible for Medicare. To ensure that newly granted
dual eligibles have Part D coverage, states forward twice
monthly electronic data files to CMS. These files identify
individuals who will be eligible for Medicare within 3
months by virtue of reaching their 65th birthday or their
24th month of disability. CMS then enrolls these
individuals to the temporary LINET plan, pending their
ultimate prospective random assignment to a benchmark plan
(in about two months time). Coverage in Part D is
retroactive to the effective the date of Medicare
entitlement. The process of enrolling full dual eligibles
in a Part D plan is called auto-enrollment.
Newly granted duals are also created if a Medicare
beneficiary becomes eligible for Medicaid. In these cases,
the person may already have a Part D plan, which needs to
update the individual’s status as an LIS-eligible through
the presentation of Best Available Evidence (BAE).
Other LIS eligibles include individuals on
a Medicare Savings Program, or SSI (with Medicare but not
Medicaid), or "undeemed" eligibles who qualify because they
meet LIS income and asset requirements. LIS-eligibles who
do not choose a Part D plan on their own are also enrolled
into a plan by Medicare. Unlike full duals who are enrolled
in a temporary plan (LINET) and then are randomly assigned
to benchmark plans), other LIS eligibles are enrolled
directly into a benchmark plan through the random assignment
process. This is called facilitated enrollment.
Point of Sale (POS) Enrollment
LIS eligible individuals should be
auto-enrolled or facilitated enrolled into a Part D plan of
they do not select a plan on their own. These processes
generally work very well. However, if an LIS-eligible
individual presents him/herself at the pharmacy without a
Part D plan, there is the Point of Sale (POS) process
administered by LINET.
If the pharmacy has reasonable assurance
that the individual qualifies for the LIS, and has no other
prescription drug coverage, the pharmacy can immediately
fill the prescription(s) and bill the claim to LINET. The
pharmacy can confirm LIS eligibility through an on-line
query or may accept other reasonable documentation, such as
(but not limited to) a Medicaid card, an LIS award letter.
Individuals and advocates may telephone LINET if there are
questions about the person’s eligibility for LIS.
LINET (Low Income Newly Eligible Transition Program)
LINET is a CMS Part D program, administered
by Humana, which began on January 1, 2010. LINET administers
the Point of Sale enrollment process for LIS eligibles that
are not enrolled in a Part D plan. LINET also acts as a
temporary plan for newly enrolled full dual eligibles, and
provides reimbursement to individuals who have retroactive
Medicare prescription drug coverage. LINET has an open
formulary, with no utilization management restrictions on
any drugs, and no pharmacy network restrictions.
Pharmacy Assistance Programs are state-funded prescription
drug assistance programs for the elderly and/or disabled.
Program rules, income and asset limits, and program benefits
vary by state. In 2010, 31 states had SPAP programs.
Federal law allows SPAPs to "wrap around" Part D coverage by
filling in Part D program gaps. SPAPs may provide co-pay
assistance, coverage during the Part D Donut Hole, and
coverage of non-formulary and/or excluded drugs. Payments
made by an SPAP for formulary drugs purchased while the
beneficiary is in the Donut Hole count toward TrOOP.
Coverage Determinations and Exceptions
All Part D plans must have an appeal
process through which members can challenge a denial of drug
coverage. The Part D appeals process is based on and
similar (but not identical) to the Part C appeals process.
Denials of drug coverage by a PDP or MA-PD
are called "coverage determinations." For example, a
coverage determination may be issued by the plan if the drug
is not considered medically necessary or if the drug was
obtained from a non-network pharmacy. It is necessary to
have a coverage determination (a written denial from the
plan) in order to initiate an appeal. A doctor’s supporting
statement is not required for this type of appeal, but it
may be helpful to submit one. If the request for coverage
is denied, the member may proceed to further levels of
appeal, including redetermination by the plan,
reconsideration by an Independent Review Entity (Maximus),
Administrative Law Judge (ALJ) review, the Medicare Appeals
Council (MAC), or federal district court.
One type of coverage determination is
called an "exception request." An exception request is a
coverage determination that requires a medical statement of
support in order to proceed to appeal. There are two types
of exceptions that may be requested:
Formulary Exceptions – This type of exception is requested because the member:
a drug that is not on the plan’s formulary, or is
removed from the formulary, and other drugs that are on
the formulary do not work or are poorly tolerated; or
disagrees with the plan’s prior authorization
requirement for the particular drug, and thinks it
should not apply to him/her;
disagrees with the plan’s step-therapy requirement
because he/she has already tried and failed the drug(s)
the plan wants him/her to take before it will approve a
requires a strength or dosage that exceeds the plan’s
quantity limit for the particular drug.
Members may not request an exception to
obtain an excluded drug. Excluded drugs include (but are not
limited to) barbiturates, benzodiazepines, erectile
dysfunction drugs, drugs for weight loss or gain and drugs
for the symptomatic relief of cough.
– This type of exception is requested because the member asks
that a drug he/she is taking be assigned to a lower
(preferred) tier – thereby reducing his/her cost sharing -
because the drugs on the plan’s higher (non-preferred) would
not be as effective or are poorly tolerated. Members may
not request that a drug be priced at the generic level if
the plan maintains a separate Tier 1 for generics. Further,
members may not ask for a tiering exception for high cost
and unique genomic and bio-tech products, if the plan
maintains a separate tier (Tier 4 or 5) for these drugs.
These two caveats essentially mean that member can only ask
to receive a Tier 3 (non-preferred) drug and Tier 2
(preferred) prices. Note also that if a member receives a
favorable Formulary Exception decision, he/she cannot then
ask for a Tiering Exception for the same drug.
If a Formulary or Tiering Exception is
denied, the member may proceed to further levels of appeal,
including redetermination by the plan, reconsideration by an
Independent Review Entity (Maximus), Administrative Law
Judge (ALJ) review, the Medicare Appeals Council (MAC), or
federal district court.
What to do When a Drug is Denied at the Pharmacy
There are two things a member must do when
a drug is denied at the pharmacy.
First, the member should contact his/her prescriber. If
the drug has been denied because it is not on formulary,
the prescriber may believe that a change to a formulary
alternative would be equally effective and unlikely to
cause negative side effects. In this case, an exception
request need not be pursued. If an exception request is
necessary, e.g., because there is no viable on-formulary
alternative, or because the member needs a dosage in
excess of the plan’s quantity limit, the prescriber will
need to submit a statement of support to the plan.
Second, the member needs to contact the plan to obtain a
written denial, or coverage determination, in order to
pursue an exception or further levels of appeal. Note
that a statement from a pharmacy that the drug will not
be covered does not constitute a coverage
determination. The decision must come from the plan
itself. All network pharmacies are required to post or
provide information to members on how to contact their
plan to request a coverage determination or ask for an
The Medical Statement
Without support from the prescriber
(physician or other provider), the exception will not go
forward. The importance of the medical statement of support
cannot be overemphasized. Without it, the member may not
progress in accordance with the prescriber’s treatment plan
and goals. The statement need not be lengthy, but it must be
specific as to why the prescribed drug is medically
necessary at the prescribed dosage. Diagnosis must be
provided. Any adverse reactions to the plan’s preferred
drug or dosage level must be documented as to date and
specific effects. If the drug is being denied because a
step therapy requirement, the statement should indicate
which formulary alternatives the member has tried and
failed, including dates and length of treatment and the
reason the drug failed. At the initial Exception Request
and the Redetermination levels, the physician’s statement
may be oral or written, but the latter is preferable (and
required at later stages of the appeal process). The plan
is not required to reverse a decision based simply on the
provider’s letter of support; however, the strength of that
support will increase the likeliness of a favorable
decision. Providers may include case notes, charts,
laboratory reports, etc. to strengthen their support.
Time Frames for Exception Requests and Authorized
The member (or his/her representative, or
the prescriber) has 60 days from the date of the plan’s
Notice of Denial to request an Exception. The plan has 72
hours (three calendar days) to render a "standard" decision,
or 24 hours if an expedited ("fast") decision is requested.
The plan must render an expedited decision (in 24
hour or less, based on medical necessity) if the plan
determines, or the prescriber statement indicates, that a
standard decision would seriously jeopardize the patient’s
life or health or ability to regain maximum function. The
plan is not required to render an expedited decision if the
member has already obtained the medication. The timing of
the plan’s decision begins when it receives the prescriber’s
The member or his/her prescriber (usually a
physician) may request an exception. (At higher levels of
appeal, the member’s physician cannot file an appeal without
being an appointed representative.) A duly appointed
conservator or other person named in a health care power of
attorney may also apply on behalf of the member. Or the
member may appoint anyone he/she chooses to act as a
representative. It is usually best and simplest to use CMS
Form 1696 to appoint a representative. The form may be
downloaded from CMS’s website.
How to File an Exception Request
The plan’s initial Notice of Denial
(coverage determination) or Redetermination Decision will
provide clear instruction on when, where and how to file the
next level of appeal. The plan’s website and 1-800 customer
service should also clearly provide this information. The
appeal may be mailed or faxed (the latter is preferable in
situations requiring an expedited decision). No specific
form is required to complete an exception request or
redetermination request. A detailed cover letter,
accompanied by relevant medical documentation and a signed
appointment of representative form, is sufficient. An
attorney is not required to submit an exception request, but
may be necessary at higher levels of appeal.
If an Exception is Granted
If an exception is granted, coverage is
granted back to the earliest date of request for the
approved drug. If the member has already paid for the drug,
the plan is required to reimburse the member in a timely
way. The exception continues for the remainder of the plan
year (although the plan may extend approval beyond
this period). For example, some drugs may be approved "for
life," depending on the member’s diagnosis and condition.
The plan may set a specific Tier at which it will place all
drugs approved by exception or appeal. A non-formulary drug
approved by exception will be considered a formulary drug
for purposes of TrOOP.
Other Levels of Appeal
If the exception is denied, the member may
go on to further levels of appeal, which are briefly
– This is a secondary review of the decision by the plan
itself, using a different set of examiners. The member,
prescriber, or authorized representative may file the
request. The request may be oral or in writing,
although the latter is preferred. Medical support is
required. The request must be filed within 60 days of
the plan’s notice of denial. This is a paper review, no
hearing is held. There are no specific forms required.
An attorney is not required. A standard decision must
be rendered in 7 days, an expedited decision in 72
hours. Timing begins when the plan receives the medical
Reconsideration – The case is reviewed by an
Independent Review Entity. (IRE) Maximus is the IRE
contractor. If the plan is not timely in its
redetermination decision, it must forward the case to
Maximus for review. Otherwise, the member (or
authorized representative) must request
Reconsideration. The request must be written and
submitted within 60 days of the Redetermination
decision, but this deadline may be extended for good
cause. Again, this is a paper review only. The
appellant may submit more medical information than was
previously submitted to the plan. An attorney is not
required but may be better able to represent the
appellant. Instructions on filing for Reconsideration
are contained in the plan’s redetermination decision.
Maximus must solicit and record the prescriber’s views.
A standard decision must be rendered in 7 days, an
expedited decision in 72 hours. Timing begins when
Maximus receives the provider information.
ALJ Review – The case is reviewed by an
Administrative Law Judge. Appellants should generally
use an attorney at this level and beyond, but it is not
required. The amount in controversy (cost of the denied
drug projected for a year) must equal at least $130 in
2011. The Office of Medicare Hearings and Appeals (OMHA)
provides forms and information on the ALJ process on
their website. The request must be in writing and must
be submitted within 60 days of the Reconsideration
decision. The member may submit additional supporting
medical information. Hearings are usually held by video
or teleconference. A standard decision is rendered in
90 days but there is also a 10-day provision for
MAC Review – This is a paper review of the case by
the Medicare Appeals Council. Filing information is on
the OMHA website. The member should be represented by
an attorney at this level. The MAC may decline to
review the case, and allow the ALJ decision to stand.
Or, it may – at the request of the IRE (if the IRE
disagrees with the ALJ decision) – take up the case on
its own motion. The request for MAC review must be
filed within 60 days of the ALJ decision. A member may
submit additional supporting information. A standard
decision is 90 days but there is also a 10-day provision
of expedited decisions.
Federal Court – the fifth and final level of
appeal. The amount in controversy must be at least
$1300 in 2011.The appeal must be filed within 60 days of
the MAC decision. An attorney is required at this
A grievance is a complaint about some
aspect of service from the plan, other than actual denial of
a drug. For example, mail order delays, poor customer
service, enrollment problems, overcharges at the pharmacy,
etc. Some complaints can have aspects of both an appeal and
a grievance. For example, A person may file an appeal
because a drug was denied, and then file a grievance because
the plan did not issue a timely coverage determination. It
is up to the plan to determine whether a complaint is an
appeal or a grievance.
A grievance must be filed within 60 days of
the event that is the source of complaint. The grievance
may be oral or in writing. The plan must issue a written
decision if one is requested. Generally, the plan should
respond to the grievance within 30 days. However, if a
grievance is filed because of the plan’s failure to expedite
a coverage determination or to forward an untimely
redetermination decision to the IRE, and the member does not
yet have the drug, the plan must respond within 24 hours of
receiving the grievance.
Unlike an appeal, there are no further
levels of appeal if the member is dissatisfied with the
plan’s decision on a grievance. However, failure of a plan
to respond to a grievance should be reported Medicare
through 1-800-Medicare or the complaint tracking feature at
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