Most people select a Medicare Part D Prescription Drug Plan when they first start their Medicare coverage at age 65, and never change it. This is a mistake, a mistake that costs people at least hundreds of dollars every year, and in some cases thousands.
What few people realize is that insurance companies change their drug formularies (that is the list of covered prescriptions) every year. A prescription drug may be covered one year, but not the next. Or in some cases, may be covered with a low copay one year, and covered with a higher copay the next.
Drug plans can also change which pharmacies they consider “preferred.” If your neighborhood pharmacy moves out of a plan’s preferred network, your prescription costs could increase even if your medications stay exactly the same. Taking a few minutes to verify your pharmacy and prescription list each year can help prevent these unexpected expenses.
In addition to that, the premiums generally go up every year.
But monthly premiums alone do not define the cost of a Medicare Part D Prescription Drug Plan. Overall cost is defined as the monthly premium + copays + deductibles. And it is the out-of-pocket costs (copays and deductibles) that need the most focus.
A higher premium does not necessarily mean higher overall cost. In fact, a plan with a slightly higher monthly premium may save you significantly more over the course of the year if it offers lower copays on the medications you take most often. Looking at your estimated annual cost instead of just the monthly premium provides a much clearer picture of what you can expect to spend.
Another thing to consider is how your prescription costs are spread throughout the year. Two plans may have similar estimated annual costs, but the amount you pay at the pharmacy each month could be quite different.
For someone living on a fixed income, that can make a big difference.
Some plans have deductibles that apply to certain medications, while others may provide coverage for those same medications without requiring you to meet the deductible first. Depending on the prescriptions you take, you could find yourself paying considerably more during the first few months of the year.
There are also different cost-sharing arrangements for different medications. A generic prescription might have a very low copay, while a brand-name medication could require coinsurance, which means you pay a percentage of the drug’s cost rather than a fixed dollar amount.
That percentage can become expensive when you’re taking a medication that costs several hundred dollars or more.
This is why you need to look at the actual medications you take instead of assuming that a plan with a low deductible or low premium is automatically the better choice.
For this reason, even if your prescriptions do not change from one year to the next, your drug plan should be looked at each year during the Annual Election Period (AEP).
Your plan’s Annual Notice of Change, commonly called the ANOC, is another document you should pay attention to.
Insurance companies send these notices each fall to explain what is changing with your coverage for the following year. Unfortunately, many people don’t read them. They assume that because they are already enrolled in a plan, everything will continue as it did the previous year.
That isn’t necessarily the case.
Your ANOC may tell you that your premium is increasing or that your deductible is changing. But it won’t necessarily tell you whether another insurance company is offering a better deal for the particular medications you take.
And remember, the other insurance companies are changing their plans too.
A drug plan that wasn’t competitive for your prescriptions last year might suddenly be one of your better options this year.
This is why simply reading your ANOC isn’t enough. You should also compare your current coverage against the other plans available in your area.
Studies have shown that people get overwhelmed when shopping for insurance and making decisions on their Medicare coverage. It is natural not to want to look at it again, but doing so can be a costly mistake. A mistake that can literally cost thousands of dollars a year.
Take time, and shop your plan. If you don’t want to do it yourself, find a reputable independent Medicare insurance broker to assist you.
A reputable Medicare insurance broker will compare several different plans for you at no cost. But be sure to talk to a broker, and not an agent to avoid biases. A broker represents several different companies, whereas an agent typically only represents one company.
One mistake I see people make is choosing a prescription drug plan based on what their spouse, friend or neighbor has.
Just because a plan works well for someone else doesn’t mean it will work well for you.
For example, you and your spouse may live in the same house, use the same pharmacy and even have the same insurance company. But if one of you takes several generic medications and the other takes an expensive brand-name prescription, your insurance needs could be completely different.
You may find that the best drug plan for your spouse is one of the most expensive options for you.
I also encourage people not to get too attached to a particular insurance company. There is nothing wrong with staying with a company you like, especially if you’ve had a good experience with them. But that doesn’t mean you shouldn’t compare your options.
Insurance companies make changes to their plans every year based on their own business decisions. Those changes aren’t necessarily going to be in your best interest.
Give your current insurance company the opportunity to earn your business again.
And don’t assume that reviewing your coverage means you have to change plans. There will be years when your current plan is still the best option available.
And that’s perfectly fine.
The purpose of reviewing your coverage isn’t to change insurance companies every year. It’s to make sure you’re not paying more than you need to for the prescriptions you take.
Now is the time to look at your options. Open enrollment starts October 15 and goes until December 7 each year.
Don’t wait until January to discover that your prescriptions are suddenly more expensive. By then, your opportunities to change plans may be limited.
Even if you ultimately decide to keep your current plan, reviewing your options each year gives you confidence that you’re still enrolled in the coverage that best fits your needs.
Spending a little time comparing plans during the Annual Election Period can translate into meaningful savings and fewer surprises throughout the coming year. With Medicare plans changing every year, it’s worth keeping up with the latest developments. Medicare brokers do just that in online communities. It is a good way to follow discussions among insurance professionals about those changes and what they mean for consumers.
