Medicare Advantage plans cover different drug types, ideally helping to save a person money on their medications and reduce out-of-pocket costs.
The government requires that people aged 65 years and over have creditable coverage for prescription medications.
In this article, we explain how Medicare Advantage covers prescription drugs.
We may use a few terms in this piece that can be helpful to understand when selecting the best insurance plan:
- Deductible: This is an annual amount that a person must spend out of pocket within a certain time period before an insurer starts to fund their treatments.
- Coinsurance: This is a percentage of a treatment cost that a person will need to self-fund. For Medicare Part B, this comes to 20%.
- Copayment: This is a fixed dollar amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
Private insurers administer Medicare Advantage plans, meaning that coverage varies between plans. However, many include coverage for prescription medications.
When a person signs up for a Medicare Advantage plan, the insurer will provide a formulary. This lists the drugs that are eligible for reimbursement under the enrollee’s plan.
Medicare requires that a formulary covers different tiers of medications. Each formulary must have at least two drugs in the most common drug categories, such as diabetes and blood pressure medications.
- Generic drugs are usually the lowest-cost drugs and serve as an alternative to name-brand drugs. Most generic medications are in a formulary’s Tier 1, which has the lowest copayment.
- Tier 2 drugs have a medium copayment and usually include brand name prescription drugs, but will also contain some generic drugs.
- Tier 3 drugs have a higher copayment and include both generic and brand name prescription drugs.
- Specialty tier medications are those that have a higher cost and, therefore, the highest copayment.
The insurance companies will have approved all drugs listed on a plan’s formulary, and each Medicare Advantage policy will vary according to how they organize the drugs on their formulary.
As the drugs in the higher tiers tend to be more expensive, Medicare Advantage may require that a person tries a drug in a lower tier before approving a higher tier, or more expensive one.
The KFF estimate that 88% of Medicare Advantage enrollees choose a plan with prescription drug coverage.
Many of these plans have a low to no premium for prescription drug coverage.
When a person signs up for Medicare Advantage, they should review the plan’s formulary. While they may not be able to find a formulary that contains all their medications, choosing a plan that has the most drugs possible can represent a cost saving.
Medicare Advantage is an alternative to Original Medicare, also known as Medicare Part C.
Medicare Advantage is a bundled plan incorporating coverage from Medicare Parts A and B.
Often, Medicare Advantage plans cover Medicare Part D or prescription drug benefits, and sometimes include vision, dental, and hearing care.
Medicare Advantage plans may operate differently than Original Medicare. For example, some plans are health maintenance organizations (HMOs).
This means a person has a primary care provider that usually refers them to a specialist for other specialty care.
Another type of Medicare Advantage plan is a preferred provider organization (PPO). A person must choose an in-network provider to benefit from healthcare cost savings.
Many people with a Medicare Advantage plan do not pay an additional premium for their plan. However, they must continue to pay the Medicare Part B premium.
Medicare Part D is prescription drug coverage through Medicare. This means a person has prescription drug coverage that covers the same as the minimum Medicare Part D policy.
A person with Original Medicare can choose to have prescription drug coverage through Medicare Part D or their employer’s insurance.
If a person has Medicare Advantage with prescription drug coverage, they cannot also have Part D.
People can only enroll in Medicare Part D if they have Original Medicare or a Medicare Advantage plan that does not provide prescription drug coverage.
If at any time a person leaves Medicare Advantage and returns to Original Medicare, they must sign up for Part D.
A person must not spend more than 63 days without coverage for prescription drugs. Otherwise, they may have to pay a late penalty based on how long they went without prescription drug coverage.
A study published in Health Affairs found those with Medicare Advantage drug plans were more likely to find getting medications and cost information easier when compared with standalone prescription drug plans.
The study surveyed participants in Medicare Advantage drug plans and Part D from 2007–2014.
Medicare Advantage plans have different deductibles. The average deductible for prescription drug plans under Medicare Advantage is $121, according to the KFF.
This amount is lower than the standard Medicare Part D plan in 2020, for which the average deductible is $435.
Once a person meets their deductible, they will usually have the following out-of-pocket expenses.
This includes the time they spend in the coverage gap once a person and their plan have met a spending limit for prescription medications. This applies to Part D and many Medicare Advantage plans also.
- A person must meet their deductible before Medicare pays for any medical costs.
- After meeting the deductible, a person pays a 25% coinsurance and Medicare funds the remaining costs. Once Medicare and an individual have paid $4,020 for prescription drugs in a membership year, the coverage gap begins.
- In the coverage gap, a person pays 25% of total costs for brand-name drugs and total generic costs up to an out-of-pocket spending limit up to $6,350.
- Once a person reaches the out-of-pocket $6,350 limit, their catastrophic prescription drug coverage kicks in. As a result, a person will pay 5% of their prescription drug costs, a $3.60 copayment for generic drugs, or an $8.95 copayment for branded drugs – whichever is greater.
If a person needs additional help paying for their prescription drugs, they may be able to qualify for “Extra Help” through Medicaid. This service provides additional financial assistance in paying for prescription drugs.
A person can view available Medicare Advantage plans in their area by using Medicare’s Find a Medicare Plan function. This function allows a person to search by area for available plans that offer prescription drug coverage.
If desired, a person can enter the names, dosages, and quantity of medications they regularly take to see how plans cover these medicines.
A person can sign up for a Medicare Advantage plan that includes a prescription drug plan (or switch their plan) at the following times:
Initial Enrollment Period: This period starts 3 months before a person’s 65th birthday, spans the month they reach 65 years, and finishes 3 months after their birth month.
A person can sign up for Medicare Advantage during this time.
Open Enrollment Period: This spans from October 15 to December 7. During this window, a person can sign up for a Medicare Advantage plan or switch from one to another.
Medicare Advantage Open Enrollment Period: This annual period runs from January 1 to March 31 and has more limitations on enrollment compared to the fall.
During this time, a person can change from one Medicare Advantage plan to another or drop their Medicare Advantage plan and return to Original Medicare.
Special Enrollment Periods: A person may qualify in special circumstances, such as losing their employer’s health coverage or moving to an area to which the plan’s network does not extend.
Most Medicare Advantage plans offer prescription drug coverage.
The formularies for Medicare Advantage vary based on generic and name-brand drugs. It is best to carefully review the formulary before choosing a Medicare Advantage plan.
If a person chooses a Medicare Advantage plan that does not have drug coverage, they must enroll in a separate Part D prescription drug plan.
A note on insurance
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