In 2006, Medicare began covering some prescription drugs taken at home. It introduced Part D drug plans, which are actually operated by private insurance companies with very little oversight by Medicare itself.

Here are the basics you need to know about Medicare Part D prescription drug plans:

Anyone who is entitled to join Medicaid (Medi-Cal in California) benefits, he's automatically enrolled in a low-cost Part D plan.

Who runs the Part D drug plans?

The federal government's Medicare program sets the basic rules for Part D prescription drug plans, but private insurance companies issue the individual plans themselves. Different plans are offered in every state. Some are called stand-alone plans, meaning they cover prescription drugs only and complement separate coverage under Part A for hospital insurance and Part B for medical insurance. People who opt for a Part C Medicare Advantage managed care plan can get Part D drug coverage through that plan instead.

The specific terms of payment and coverage are set by the company issuing the Part D plan, subject only to Medicare's general rules. If someone wants to enroll in a plan, he does so directly with the insurance company that offers it, whether it is a stand-alone Part D plan or part of a Part C managed care plan.

Monthly premiums for stand-alone Part D plans, and for Part C Medicare Advantage managed care plans that include drug coverage, run from about $10 to $75 per month, depending on which plan someone chooses and where he lives. The average cost of a plan is about $25 per month; a few plans have no premium at all. Generally, plans with the broadest coverage and lowest copayments have the highest premiums.

No plan covers every prescription drug, or even comes close. First, by law some drugs are not covered at all: these include certain sedatives, tranquilizers, sleeping pills, drugs used for weight loss or gain, and over-the-counter medications.

Medicare only requires each plan to cover two drugs -- either brand-name or generic -- in each "therapeutic class" of medications. That means that for any disease or condition, a plan covers some but not all drugs. The specific drugs a plan does cover are included in a list called a formulary. A plan pays its share only of the drugs listed on its formulary and purchased from a pharmacy -- either a store or a mail-order service -- that participates in that plan.

Unfortunately, every year each plan changes the drugs it includes in its formulary. The fact that a plan now covers all of someone's drugs doesn't mean that it will next year, which means the person who's covered has to stay on his toes. Each autumn, when all plans announce changes in their formularies for the following year, he must check to make sure his drugs will still be covered by his current plan. If not, he'll want to consider changing plans.

Knowing that the drugs someone takes are included in a plan's formulary list doesn't tell you everything about coverage. Plans can place other restrictions on drug availability or cost; for instance, they may create drug tiers in which the copayment for brand-name drugs is more than for generic equivalents, or the copayment for one brand is more than for another.

Also, plans are permitted to do "drug substitution," in which an individual's doctor prescribes a drug but the plan covers only its generic form or a different "equivalent" drug. The plan might also require prior authorization for certain restricted drugs; or it can stipulate "step therapy," which means he must try a less expensive medicine within a particular class of drugs before the plan will pay for a more expensive one.

The rules for how much a plan pays can be complicated, so you may need to compare plans carefully. The figures here are for 2009.

* Deductible: With most plans, the covered individual pays out-of-pocket for the first $295 of his prescription drug costs for the year. A few plans that charge a high monthly premium waive some or all of this deductible.
* Partial coverage: After the deductible is reached, a plan pays 75 percent of costs for drugs covered in the plan's formulary. The individual is responsible for the other 25 percent. His portion comes in the form of a copayment for each prescription; the amount of the copayment may vary depending on the plan's drug tiers. This 75-25 split continues until each individual's total prescription drug costs for the year reach $2,700.
* No coverage (the "doughnut hole"): Once a person's total prescription drug costs for the year reaches $2,700 (combining what the plan pays and what the person pays), the plan pays nothing more for his drugs unless and until he reaches the catastrophic limit. A few high-premium plans pay some percentage of costs while he's in this expensive "doughnut hole."
* Catastrophic coverage: If the total amount a person pays out-of-pocket for prescription drugs during the year reaches $4,350, his plan will again begin coverage at the rate of 95 percent of further costs for covered drugs, with him paying the remaining 5 percent.

If their income is low (up to 150 percent of the federal poverty level) and they have few assets (up to roughly $12,000 for an individual, or $25,000 for a couple) other than a home, they might be eligible for a low-income subsidy (LIS) that provides significant help with the costs of a Part D plan. Depending on exactly how much income and how many assets they have, the deductible, coverage gap, and copayments could all be eliminated or reduced. Applying for an LIS is done separately from enrolling in a plan, and it's done with the Social Security Administration, not directly with the plan or with Medicare. Get information on the Social Security Administration website, call toll-free at (800) 772-1213, or make an appointment with any local Social Security office.

Having as many of their drugs as possible included in a plan's formulary, even though the list changes every year, is the single most important factor in choosing a plan. If more than one plan with all drugs on the formulary is available, choose the plan that has the fewest restrictions on access to those drugs and the lowest total costs (not just the lowest monthly premium). Check whether the plan waives any of the deductible, and total up the copayments they'd pay per prescription. If they spend a lot on medications, also consider whether there's any coverage within the "doughnut hole." Finally, check to see whether the pharmacy they prefer participates in that plan.

A plan that at first seems the right one may turn out not to be the best. It may have restrictions that didn't seem especially important when they signed up for it, but have since proven to be a problem. The plan might change its formulary more than most from one year to the next, change its rules or restrictions, or raise its premiums. Or maybe a new plan is now offered that has better terms. In any of these situations, a person can leave his current plan and enroll in a new one. But he must do so by signing up during the open enrollment period from November 15 to December 31 each year.

Medicare Rights Center.

Once you've gathered information about plans and narrowed their choices, it's time to directly contact the plans that seem the best. It's only from the plans themselves that you can be sure to get the latest information -- in writing -- about coverage, costs, and restrictions. Once you decide on a particular plan, you enroll directly with it, not with Medicare.

Medicare Part D Prescription Drug Plans

Medicare Part D Eligibility

About the Author

Joseph L. Matthews has been an attorney in the San Francisco Bay Area since 1971. From 1975 to 1977 he taught at the School of Law at the University of California, Berkeley. He is the author of numerous books, including Social Security, Medicare, and Government Pensions; Long-Term Care: How to Plan and Pay for It; How to Win Your Personal Injury Claim; and The Lawyer Who Blew up His Desk.

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