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5.1 - Medicare Part D

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5.1 - Medicare Part D

The goal of this chapter is to familiarize you with the Medicare Part D program, describe some of the problems of a rushed introduction and implementation of the program, introduce the basics and mechanics of the program, and discuss low-income options for certain individuals. Upon completion, you should be familiar with all of the following:

  • the hurried work and dedication of governmental entities to implement Part D;
  • the dedication and hard work of insurance people to market Part D in a short time;
  • the confusion that resulted for Medicare enrollees, their children, their professional advisors, and insurance agents in explaining Part D;
  • the basics and mechanics of the Part D program;
  • the variety of ways to qualify for assistance and “Extra Help” for low-income Medicare and Medicaid recipients;
  • high-income premium increases;
  • employer subsidies and programs for retaining retired workers on group health plans;
  • the complaint and appeals process for Part D; and
  • appropriate and correct marketing practices by both companies and producers.



5.2 - MMA 2003 Creates a New Prescription Drug Program

MMA 2003 legislated a long-requested prescription drug solution for those on Medicare. The very name of the law—the Medicare Prescription Drug Improvement and Modernization Act of 2003—highlighted the fact that a completely new part of Medicare had been created: that of prescription drug coverage. The program was introduced to nearly 46 million beneficiaries and their families, physicians, and pharmacists, along with the American health care industry and the insurance industry.

Illustrating how quickly MMA 2003 was implemented are these facts:

  • On December 8, 2003, the bill became law.
  • A little over one year later, by January 21, 2005, CMS had established the final rules for implementing the law.
  • Four months later, in May of 2005, the Social Security Administration began sending notices to Medicare beneficiaries informing them that they may be eligible for a low-income subsidy to assist with Part D premiums and co-payments.
  • One month later, in June 2005, CMS sent notices to beneficiaries deemed eligible for the low-income subsidy, notifying them that they did not have to apply for the subsidy.
  • In the fall of 2005, Medicaid agencies sent notices to dual eligibles stating that their prescription drug coverage would be terminated on January 1, 2006, and that they would automatically be enrolled in a Medicare Part D plan. (The Medicare Part D low-income subsidy is also called Extra Help.)
  • Also, on October 15, 2005, CMS sent information to all Medicare beneficiaries describing the Part D program and identified the initial enrollment period of November 15, 2005, to May 15, 2006.
  • On January 1, 2006, the Part D benefit began.

Condensed to a list, all of this might seem fairly simple and straightforward, but the fact is, it took enormous effort and dedication on the part of hundreds of thousands of people to implement the program. For instance, in number 3 above, we see the work of CMS, DHHS, Medicaid, and other social workers moving forward rapidly. To accomplish numbers 4 and 5, CMS workers had to assist beneficiaries in transferring to Part D, because applying for the subsidy was unnecessary on the part of dual eligibles. Even though dual eligibles were automatically enrolled in the program, government workers were taxed to complete the job on time.

But even while the government was completing these tasks, another job had to begin, nearly simultaneously. That effort, one of marketing the Part D product, belonged to the insurance industry. This job, which was no small task, belonged to Medicare supplement producers and Medicare Advantage producers.

Included in MMA 2003 was a provision that Medicare (CMS) would open the program to prescription drug providers (PDPs)—private companies that would negotiate with pharmaceutical companies to include their drugs in the PDP company plan. Thus, Part D products were available only through the PDPs and not through Medicare itself.

With the exception of Extra Help and dual eligible government programs, consider that the Part D program is voluntary and requires marketing. This means that people can choose to be covered in one of two ways—by either voluntarily buying a stand-alone Part D plan or by enrolling in a Part C (Medicare Advantage) plan, which includes Part D in the plan. Stand-alone Part D programs were now to be sold by insurance agents, but more directly, by senior/retired market agents, Medicare supplement agents, or Medicare Advantage agents who had qualified for and received certification to sell Part D. Obviously, the Medicare Advantage programs could be sold only by those who were certified to sell MA.

The problems associated with this mass-marketing effort did not necessarily arise within the programs but were due to the confusion surrounding the large choice of programs available. This confusion was not limited to consumers. While potential enrollees and their friends, neighbors, children, and pharmacists tried to cope with all the new terminologies and choices, so too did those charged with selling the product. Training sessions were held for salespeople, and seminars, meetings, and workshops were held for consumers who were considering purchasing the program in one way or another.

In a letter to CMS in March of 2007, the American Academy of Actuaries pinpointed in one short paragraph what had happened. The letter stated:

Initial concerns that only a few sponsors would submit bids or that beneficiaries would only be able to select from a limited number of plans have proven to be unfounded. More than 1,400 prescription drug plans were offered in 2006 and most beneficiaries had more than 40 different plans to choose from. For 2007, the total number of plans increased to nearly 1,900, with most beneficiaries having 50 or more plan choices.

These numbers clearly show that Medicare enrollees were plagued with a barrage of mailings and media advertisements regarding the value of dozens of new prescription drug plans. Thus, potential buyers of Part D plans were obviously in a quandary about which was the best plan, and then, which was the best plan for their money. Part D agents, after studying a plan or several plans that they became qualified to offer, waded through the benefits of each, and were not allowed to discuss the merits or benefits of any competing plans. This left the client in the position of choosing from many different agents or mail order companies what they deemed the “best” plan for the “best” money. And of course, some people had no agent on whom to rely for advice. By 2010, the confusion surrounding the Part D program had still not subsided, and agents began to excuse themselves from assisting consumers who wanted stand-alone prescription drug plans.

So, naturally, the criticism of the program started and, as with Part C, the media showcased several examples of bad salesmanship. CMS was accused of creating a program that caused confusion and havoc with its constituency. Insurance agents and companies were accused of misleading the public and using inappropriate sales techniques. These negative outcomes notwithstanding, Part D became a substantial part of American health care. And when considering the millions of people covered, Part D was executed with comparatively few problems. Finally, the “noise” created by Part D implementation quieted, thanks to hundreds of thousands of hardworking individuals, both public and private.



5.3 - Introduction and Implementation of the Medicare Part D Program

In a 12-page bulletin issued January 21, 2005, CMS released its “Final Rules Implementing the New Medicare Law: A New Prescription Drug Benefit for All Medicare Beneficiaries, Improvements to Medicare Health Plans and Establishing Options for Retirees.” The first paragraph of the report summarizes the intent of the law established by MMA 2003. Its content can be used as a starting point for a discussion of the new Part D program:

The U.S. Department of Health and Human Services’ Centers for Medicare and Medicaid Services (CMS) today issued the final regulations implementing the new prescription drug benefit that will help people with Medicare pay for the drugs they need. This benefit begins in January 2006 and allows all Medicare beneficiaries to sign up for drug coverage through a prescription drug plan or Medicare health plan. The final regulations also provide new protections for retirees who currently receive drug coverage through their employers or unions, and they strengthen the Medicare Advantage program.

Two significant points in this paragraph serve as the basis for this chapter. The first point is “. . . drug coverage through a prescription drug plan or Medicare health plan.” This means the purchase of a stand-alone Part D plan or utilization of a Medicare Advantage plan. The second point, “ . . . new protections for retirees who currently receive drug coverage through their employers or unions,” refers to the concern that employers would drop retirees from their existing group health insurance because of escalating prescription drug costs. (We will address both of these points separately later in this chapter.)

A second paragraph in the “Final Rules” report summarizes the outlook for the new program:

With the enactment of the MMA, and the final rules issued today, Medicare looks more like the rest of the American health care delivery system by giving beneficiaries the option of new, subsidized drug coverage, as well as new support to keep their current retiree coverage secure.

And a final paragraph in the report describing the implementation of the Part D plan has significance to both Medicare Advantage plan representatives and Medicare supplement producers, stating:

The Medicare prescription drug benefit: The final rules describe the plan options that beneficiaries will have to obtain their outpatient drug coverage. Prescription drug plans and Medicare Advantage plans will be required to provide basic coverage, but may also offer additional plans with supplemental coverage.

Medicare supplement producers should not infer that this statement applies to Medicare supplement plans—the paragraph addresses prescription drug plans that providers offered to Medicare recipients beginning January 1, 2006. In other words, private companies—prescription drug providers or PDPs—offer the Part D plans, and payment for them will be through a Part D premium. At least one Medicare Advantage plan (per company) must have the Part D benefit built into its offerings.

MMA 2003 required (and allowed) PDPs to become available on a national as well as a regional basis. A PDP can call itself a national plan if it covers the 34 CMS PDP regions of the 50 states and DC, or if it covers 26 of the regions. Regional PDPs can serve fewer than 26 regions, and local plans can choose to operate in specific counties. National and regional PDP plans must have a network of contracting providers that have agreed to a specific reimbursement of the plan’s covered services; these plans must also provide uniform benefits within their service areas.

According to a “Medicare Fact Sheet” presented by the Henry J. Kaiser Family Foundation in June 2007:

Financing for Part D comes from beneficiary premium payments, state contributions, and general revenues from the Medicare program. The monthly premium paid by enrollees is set to cover 25.5 percent of the cost for standard drug coverage. CMS subsidizes the remaining 74.5 percent based on bids submitted to CMS by plans for their expected benefit payments. Plans can also receive additional risk-adjusted payments for high-cost enrollees and reinsurance payments for 80 percent of costs above the catastrophic threshold. A Part D plan’s total potential losses or profits are limited by risk-sharing arrangements with the federal government.

Even though the early years of Part D saw a large number of plans introduced (1,400 in 2006; 1,900 in 2007), the number of plans was reduced through consolidation and closing to a much more manageable 688 by 2013. However, the number of MAPD plans—MA plans that include Part D—grew to 2,703 as of 2013.



5.4 - The Mechanics of Medicare Part D

As written into MMA 2003, CMS must hold a single 45-day open enrollment period. (As you may recall, the annual enrollment period is the period—October 15 through December 7—when an enrollee can change plans or enroll in a plan.) Part D plans are known as either PDP or MAPD, depending on whether they’re stand-alone plans or are included as part of an MA plan. The new coverage takes effect on January 1 of the following year.

Also, the initial enrollment period for those turning 65 (aging in) tracks somewhat with Medicare enrollment rules in that the recipient can enroll in a Part D plan (stand-alone or MAPD) during the seven-month period that starts three months before the month he or she turns 65 and continues through the three months following the month he or she turns 65. The importance of these dates is that anyone who did not take advantage of the initial enrollment period will pay an additional premium surcharge: they will be assessed an additional 1 percent per month (cumulative) premium for each month they delayed enrollment, unless they could prove creditable coverage from an existing plan (for example, coming off an employer-sponsored group health insurance program). From that point on, the rules of the Part D plan are still in force for the remainder of the Part D program as it is written.

As an example, currently and in the future, anyone who delays Part D enrollment for four years (48 months) will see a 48 percent additional charge in his or her Part D premium. In short, late enrollees in the Part D program are surcharged, and the surcharge is cumulative from the time of enrollment and continues thereafter—the additional charge is added in perpetuity. The additional surcharge is based on the National Base Beneficiary Monthly Premium, established every year by CMS.5 (In 2012, this amount was $31.08; in 2013, it was $31.17.)

How the Penalty Is Applied

An example will help clarify how the Part D late enrollment penalty is applied. Let’s say that John became eligible for Medicare Part D on February 8, 2008, but he chose not to obtain Part D even though he had no other creditable coverage. At that time, John was in fairly good health, free of any chronic ailments that required regular prescription medication, so he thought the money he would otherwise have paid for prescription drug coverage could be better spent on other things.

In 2011, John was diagnosed with high blood pressure and high cholesterol and had to start taking prescription drugs every day to manage the effects of those conditions. When open enrollment came around at the end of 2011, John enrolled in a Medicare Part D prescription drug plan, and his Medicare Part D prescription drug coverage became effective on January 1, 2012. At that point, John had gone without Medicare Part D prescription drug coverage or any other creditable coverage for 46 full months, from March 2008 through December 2011.

The penalty for John’s late enrollment begins when he does enroll. For 2012, the penalty would be calculated as follows:

  • $31.08 (Medicare Part D base premium for 2012) x .01 = $.3108
  • $.3108 x 46 (months without Part D or other creditable coverage) = $14.2968
  • $14.2968 rounded to the nearest $.10 = $14.30

Each month in 2012, Robert had to pay a late enrollment penalty of $14.30 in addition to the premium for his Medicare Part D prescription drug plan.

  • In 2013, John’s penalty is recalculated, as it will be every year he remains in a Part D plan. In 2013, the Medicare Part D base monthly premium increased slightly to $31.17, but due to rounding, John’s late enrollment penalty will remain the same: $31.17 (Medicare Part D base premium for 2013) x .01 = $.3117.
  • $.3117 x 46 (months without Part D or other creditable coverage) = $14.3382
  • $14.3382 rounded to the nearest $.10 = $14.30

Each month in 2013, John will again pay a late enrollment penalty of $14.30 in addition to the premium for his Medicare Part D prescription drug plan. As the Medicare Part D base premium continues to adjust each year, so will the amount of the late enrollment penalty added to the premium John pays each month for his Medicare Part D prescription drug plan.

The premium surcharge is permanent; surcharged premiums will never be lowered. As a result, surcharged Part D premiums can become a financial hardship, especially when added to the inflationary increases in the price of the prescription drugs.

This concept, one of true insurance, is justifiable. The concept of delaying buying to save premium money is relative to any other life or health insurance product: the customer determines he or she is not going to pay premiums until coverage is absolutely necessary, and then buys it at the current (higher) rate. Age-rated insurance products use this concept, and Part D certainly uses the right strategy in relying on this fundamental principle.

In January 2007, DHHS issued a bulletin titled “Part D Special Enrollment Periods,” which stated, in part, the following:

In certain situations, people with Medicare may be eligible for a special enrollment period (SEP) to join a plan that provides Medicare prescription drug coverage, or switch to a different plan. A special enrollment period is a period of time when an individual can enroll in or switch plans outside of the October 15 through December 7 annual enrollment period.

Eligibility for SEPs can be determined from a list of 23 situations that may allow an enrollee to use a SEP. (Refer to the discussion of special enrollment periods in Chapter 4.)

5 The base premium is a statutorily defined percentage of the National Average Monthly Bid Amount, a weighted average of all the bids submitted by approved Medicare Part D prescription drug coverage plans.

5.5 - Foundation of Medicare Part D Rules

Title I of MMA 2003 describes the parameters of the Prescription Drug Act:

  • The MMA 2003 establishes a voluntary prescription drug benefit.
  • The benefit is for outpatient drug purchases.
  • The beneficiary must be enrolled in Part A and/or Part B of Medicare.
  • Coverage is provided through one of the following:
    • private prescription drug plans, which offer drug-only coverage, and the beneficiaries remain in traditional Medicare for their Part A and Part B services; OR
    • Medicare Advantage plans, which offer both prescription drug and health care coverage (known as MAPD plans) and combine or integrate the Part D prescription drug coverages with the coverage for Part A and Part B services.
  • A new type of Medicare Advantage plan can be offered, which is a regional preferred provider organization (RPPO) plan. RPPOs must follow special rules:
    • They must offer Medicare Part D Prescription Drug benefits.
    • They must place a cap on annual beneficiary out-of-pocket expenditures on Medicare cost sharing.
  • Every Medicare beneficiary must have access to at least two different Medicare Part D plans, one of which must be a PDP.
  • Both types of plans (PDP and MAPD) must offer a standard drug benefit but must have the flexibility to vary the drug benefit within actuarial equivalency parameters.
  • Assistance with premiums and cost sharing is provided to eligible low-income beneficiaries.
  • Covered Part D drugs are essentially the same drugs and biologicals that are approved for the Medicaid program. Drugs and biological products that are already paid by Medicare Part A or Part B are not included.
  • The drugs must be dispensed through a prescription and on an outpatient basis.
  • A member may be enrolled in only one Part D plan at a time.
The Part D Drug Benefit

The standard Part D plan is known as the basic standard plan. Medicare allows four variations of the basic standard plan, but these variations must all follow certain rules regarding construction of benefit packages and cost sharing. These variations are known as the:

  • alternative basic standard plan
  • alternative enhanced plan
  • alternative enhanced plan that offers supplemental prescription drug coverages
  • alternative enhanced plan that offers optional prescription drug coverage

One additional plan, called the fallback plan, can be offered in any region or in a local area of any region where a choice of at least two qualifying plans, one of which is a stand-alone PDP, does not exist. These plans can be offered by Medicare Advantage plans (MAPD) and have a wide variety of complexities and differences. Only the basic standard plan as it is designed as a stand-alone plan is discussed here, because it is the basis on which the other variations are built.

The Basic Standard Part D Plan

The basic standard plan is the most commonly described plan and is the foundation of the Part D program, reflecting the minimum level of benefits that may be provided. It includes a formulary, which is the list of the drugs the plan covers. Formularies include both generic and brand-name drugs and provide for the most commonly prescribed drugs. Following are the principle aspects of the basic stand-alone plan:

  • Premiums for Part D are paid monthly and vary by plan and by provider. Basic Part D premiums were originally set at an anticipated benchmark of $37 per month, but in actuality, the prescription drug providers obtained lower premiums by bidding for the first year. (Premiums, however, are expected to rise each year as the program moves into maturity.) In 2013, the Part D plan premium averaged about $30 per month.
  • The basic Part D plan includes an annual deductible—the amount out of pocket the insured must initially pay for his or her drugs. The basic plan annual deductible in 2013 was $325.
  • Basic Part D plans include coinsurance provisions—the amount the insured pays for his or her prescription medication after the annual deductible is met. This coinsurance amount is 25 percent, payable by the insured up to a specified limit ($2,970 in 2013). Therefore, for expenses above the deductible and up to the specified limit, the Part D enrollee pays 25 percent; the plan picks up the balance.
  • The next level of expenses ($3,697.50 as of 2013) is known as the “donut hole” or “coverage gap.” Part D does not completely cover these expenses but does provide for discounts. While in the donut hole, the beneficiary pays 47.5 percent of the cost out of pocket for brand-name drugs and 79 percent for generic drugs. Coverage at this level continues until an enrollee has paid a full out-of-pocket cost of $4,750 (as of 2013). (The full out-of-pocket expense the enrollee is responsible for is also called TrOOP, or true out-of-pocket costs. TrOOP costs include the initial deductible, the coinsurance amounts, and any costs the enrollee paid while in the donut hole.) Though the enrollee pays a discounted price for drugs while he or she is in the donut hole, the full retail price of the drugs counts toward his or her out-of-pocket costs.

Once the total of an enrollee’s prescription drug costs reach a specified level (known as the catastrophic level), the plan will again pick up the bulk of expenses. The catastrophic level in 2013 was $6,667.50. (This amount is also expected to rise each year.) At this point, the beneficiary pays 5 percent coinsurance, and Part D pays 95 percent, OR the beneficiary pays a $2.60 or $6.60 co-pay, depending on the type of drug. So, at the catastrophic level, Medicare Part D essentially covers the remainder of the annual drug costs at 95 percent or better.The following table illustrates Part D expenses for beneficiaries in 2013:

Standard Part D Plan (as of 2013)

Prescription Drug Expense


Costs to Enrollee

First $325

Enrollee pays 100 percent.


$325 to $2,970

Enrollee pays 25 percent; Part D pays 75 percent.


$2,970 to $6,667.50

Enrollee is in the donut hole and pays 47.5 percent for brand-name drugs and 79 percent for generic drugs.


At this point, total drug costs have reached $6,667.50, and the enrollee has paid $4,750 of TrOOP (true out-of-pocket costs).

Above $6,667.50

Enrollee pays a nominal amount, or Part D picks up approximately 95 percent.

Co-pay of $2.60 or $6.60 (or 5 percent)

Changes to the Donut Hole

One of the goals of the 2010 health care reform law is to eventually close the Medicare Part D donut hole. To begin, PPACA provided for a one-time, tax-free rebate of $250 for Part D enrollees who reached the coverage gap in 2010 (and were not receiving Extra Help, explained below). Next, Part D enrollees who reach the donut hole are given a discount on their drugs while they are in the hole (a 52.5 percent discount on brand-name prescription drugs and a 21 percent discount for generic drugs, as of 2013). Again, though the enrollee pays a discounted price, the full retail price of the drugs counts toward the TrOOP costs, which will have the effect of moving the enrollee through the donut hole more quickly. Then, every year thereafter, the donut hole will be reduced, until the year 2020, at which point Part D will cover 75 percent of the cost of an enrollee’s prescription drugs. The enrollee will be responsible for a deductible and then only the remaining 25 percent of the cost of the drugs.

Medicare and Medicaid Coordination—Dual Eligibles

As we’ve learned, a person who is eligible for both Medicare and Medicaid coverage is known as a dual eligible. For dual eligibles, Medicare coverage is primary, with all available benefits being used before Medicaid begins. Medicaid may also pay for items that Medicare does not cover, but coverage is based on showing financial need. States are rigorous in conducting their searches for assets and income.

Medicare Part D and Low-Income Subsidy—Extra Help

Once an individual is a dual eligible, prescription drug benefits are covered under the Medicare Part D program. Medicare automatically enrolls dual eligible individuals in a Medicare Part D plan.

Dual eligible individuals automatically qualify for the Medicare Part D low-income subsidy (Extra Help). The low-income subsidy pays all or part of the individual’s monthly premium for the Medicare Part D plan. Plans are available that the enrollee can join and pay no premium, and still others in which the enrollee would have to pay a portion of the premium. If the individual is enrolled in a Part D plan with a monthly premium less than the regional benchmark set by Medicare, his or her monthly premium is paid in full by Extra Help.

A dual eligible individual has no annual deductible; he or she is covered for prescription drugs, even through the Medicare Part D coverage donut hole.

In addition to Extra Help, there is the Limited Income Newly Eligible Transition (NET) Program. This CMS program provides Part D coverage for all low-income subsidy (LIS) beneficiaries with an immediate need who are not already enrolled in a Part D plan, and for full benefit dual eligibles (Medicare and Medicaid) with uncovered months (i.e., months without Part D coverage) in the past. The plan can be accessed by auto-enrolling with CMS, by filling a prescription at the point of sale, or by submitting a receipt for prescriptions already paid for out of pocket during eligible periods. The enrollment is for the current month and the next month, and provides an automatic enrollment in a standard Part D plan two months into the future.

Assistance for Low-Income Beneficiaries—Medicare Savings Programs

In addition to these Extra Help programs are Medicare savings programs (MSPs). Many people do not enroll in Part B at the required eligibility date because they cannot afford the monthly premium. For those with incomes below 135 percent of the federal poverty levels, and with few resources, MSPs, which are operated by state Medicaid programs, pay the Part B premium. In addition, for those with incomes below 100 percent of poverty levels, an MSP called the Qualified Medicare Beneficiary Program will pay other Medicare cost-sharing expenses.

If an individual has a low income and limited resources, the state may pay his or her Medicare costs, including premiums, deductibles, and coinsurance. Each state has several programs that are part of the Medicaid savings programs that will pay some of the costs of Medicare.

Combined, the programs function under the common name of Medicare savings programs. The programs have similar names but offer different benefits. They also have slightly different qualifications. A person’s income and resources (if any) determine which program they can apply for.

Medicare savings programs are described by several names. As noted in Chapter 3, these include:

  • Qualified Medicare Beneficiary (QMB)
  • Specified Low-Income Medicare Beneficiary (SLMB)
  • Qualifying Individual (QI)
  • Qualified Disabled and Working Individual (QDWI)

In addition to all of these names, some provisions of MMA 2003 introduced special needs plans (commonly known as SNPs) to address the issues of special populations—the frail elderly, dual eligibles, and certain disease-specific populations. SNPs can limit their membership to only those defined populations and offer a combination of medical and Part D benefits. In addition, some of the Extra Help provisions of the programs cited previously can be included in SNPs.

MIPPA 2008 eased qualification requirements for Medicare savings programs and provided funding to Social Security and SHIP offices to train employees to better educate and assist beneficiaries in obtaining these low-income plans. In addition, MIPPA 2008 further defined SNPs as being reserved for those who

  • need an institutional level of care;
  • are dual eligible; and
  • have a severe or disabling chronic condition and have in place an evidence-based model of care (i.e., a care management program).
5.6 - Other Provisions Implemented with MMA 2003

In addition to introducing a prescription drug benefit and making all of the changes to Medicare Part C, MMA 2003 set forth other changes. Chief among them was adjusting certain Medicare payments for higher income earners and providing incentives for employers to keep their older (Medicare-eligible) employees and retirees in their group health plans.

Part B Premium Increases for High-Income Earners

Medicare Part B premium increases for higher income beneficiaries were included in MMA 2003. This process is known as means testing (income-related) and went into effect in 2007. The law provides for higher premium payments for Medicare Part B coverage and relates to the 25 percent payment that beneficiaries pay for Part B. Under the law, Part B monthly premiums are now tied to income levels, and Part D deductibles, coinsurance, and donut hole amounts will follow the inflationary trends built into Part D.

Beneficiaries who make more than specified amounts pay a greater monthly Part B premium. These threshold amounts are currently set at $85,000 for single filers and $170,000 for joint filers. The following shows monthly Part B premiums for 2013, based on the beneficiary’s modified adjusted gross income level:

Modified Adjusted Gross Income Level Adjusted Amount (to be added to the monthly Part B premium) Total Monthly Premium

Single filers: $85,000 and less

Joint filers: $170,000 and less


$104.90 (standard premium)

Single filers: Between $85,001 and $107,000

Joint filers: Between $170,001 and $214,000



Single filers: Between $107,001 and $160,000

Joint filers: Between $214,001 and $320,000



Single filers: Between $160,001 and $214,000

Joint filers: Between $320,001 and $428,000



Single filers: Above $214,00

Joint filers: Above $428,000



These amounts are subject to change every year. Beneficiaries can appeal their premium charge with Social Security if their family situation changes or their income declines.

Part D Premium Increases for High Earners

Beginning in 2011, higher income Medicare beneficiaries who pay the income-related Part B premium will also pay an additional income-related Part D premium. This is known as a monthly adjustment amount. The monthly adjustment amount is not related to the premium of the plan in which such beneficiaries are enrolled but is based on a calculation determined by CMS. Thus, a single individual with a modified adjusted gross income of $86,000 will have a Part D monthly adjustment amount of $11.60 withheld from his or her Social Security check regardless of the Part D plan’s premium.

The monthly adjustment amount will automatically be deducted from the recipient’s monthly Social Security retirement check. Beneficiaries who pay the Part D monthly adjustment amount will continue to pay their regular Part D premium to the drug plan in which they enroll.

Part D Income-Related Premium Adjustment

Modified Adjusted Gross Income Level

Income Related Monthly Adjustment Amount

(as of 2013)

Single filers: $85,000 and less

Joint filers: $170,000 and less


Single filers: Between $85,001 and $107,000

Joint filers: Between $170,001 and $214,000


Single filers: Between $107,001 and $160,000

Joint filers: Between $214,001 and $320,000


Single filers: Between $160,001 and $214,000

Joint filers: Between $320,001 and $428,000


Single filers: Above $214,00

Joint filers: Above $428,000


5.7 - Complaints and Appeals Regarding Part D

While complaints regarding prescription drugs and Part D drug plans are varied, they are usually related to two things—covered drugs and payments. In either case, the beneficiary has the right to file a complaint with the plan, which is called a grievance. The process starts with a call to the Part D plan sponsor, whether it’s a stand-alone plan or part of an MA plan, requesting a determination of the grievance. If the plan decides against the beneficiary, then five levels of appeals are available. These appeal levels are similar to those that apply for a Medicare claims appeal. For review, they are:

  • Level 1: appeal to the plan (a “redetermination”)
  • Level 2: appeal to an outside independent review organization (a “reconsideration”)
  • Level 3: appeal to an administrative law judge
  • Level 4: appeal to the Medicare Review Council
  • Level 5: initiate civil action, to be heard in a federal court
  • appeal through the plan (called a redetermination)—The beneficiary must request this appeal within 60 calendar days from the date of the coverage determination. A standard request must be filed in writing, unless the plan accepts requests by telephone. The beneficiary, appointed representative, or doctor can ask for an expedited request. The plan will be expedited if the plan determines or the doctor tells the plan that the beneficiary’s life or health will be seriously jeopardized by waiting for a standard decision. Once the plan receives the request for an appeal, the plan has seven days (for a standard request or for a request to pay the beneficiary back) or 72 hours (for an expedited request for coverage) to notify the beneficiary of its decision.
  • review by an independent review entity (called a reconsideration)—If the plan decides against the beneficiary, beneficiaries can request a review by an independent review entity (IRE). Rules for this request are similar to those associated with Level 1 above.
  • hearing with an administrative law judge—If the IRE agrees with the plan’s decision, the beneficiary can request a hearing with an administrative law judge (ALJ). To receive an ALJ hearing, the projected value of the denied coverage must meet a minimum dollar amount (combined claims are allowed).
  • review by the Medicare Appeals Council—If the ALJ agrees with the plan’s decision, the beneficiary can request a review by the Medicare Appeals Council (MAC). This request must be made in writing, within 60 days from the date of the notice of the ALJ’s decision.
  • review by federal court—If the MAC agrees with the plan’s decision, the beneficiary can request a review by a federal court.

In addition, Medicare has made available a toll-free telephone number and Web site for complainants to discuss their complaint with a Medicare official after a redetermination.

5.8 - Marketing of Part D Products

Most of the requirements for marketing Part D from a general Medicare Advantage standpoint were discussed in Chapter 4. As a review, the guidelines for those marketing requirements come from CMS guidelines and are directed to MA companies. MA companies, in turn, are to relay these guidelines to their producers through normal company channels. However, there are additional guidelines for marketing Part D products. So, let’s summarize those procedures, relying on the CMS basic regulations as they relate to both companies and producers.

Part D Marketing Procedures

First, companies must provide a pharmacy ID card to enrollees. On the front side of the card must be the name or logo of the benefit administrator and/or processor issuing the ID card, including co-branding symbols and logos and the card issuer’s ID. Also, the card must include:

  • the cardholder’s identification number, which cannot be the Social Security number or health care insurance claim number. The plan or the claim administrator generates the cardholder’s ID number;
  • the cardholder’s first name, middle initial, and last name;
  • electronic transaction routing information;
  • the CMS Part D contract and plan benefit package numbers; and
  • the Medicare symbol.

The back of the card must contain:

  • the claims submission names and address;
  • customer service numbers;
  • customer service TTY/TDD numbers;
  • bar coding, where required by state law;
  • optionally, Medicare contact information;
  • benefit administrator Web site information; and
  • the phrase “Medicare limiting charges may apply.”

Secondly, Part D plans must include within their marketing materials information about their participating network pharmacies and must provide this information upon beneficiary request. At the time of enrollment, the MA organization must disclose clear, accurate, and standardized information regarding the plan and must include it in their provider directory. The provider directory must include the number and addresses of providers from whom enrollees may obtain services as well as any out-of-network coverage or point-of-service options. The directory must also include names, addresses, and telephone numbers of the primary care physicians, specialists, skilled nursing facilities, hospitals, outpatient mental health providers, and pharmacies where outpatient prescription drugs are offered by the MA plan. The provider directory must be presented at least annually to each enrollee.

Included must be general information about network lock-in, a description of the plan’s service area, telephone numbers for customer service or contact information, and information regarding out-of-area coverage and emergency coverage.

When producers explain Part D coverage, they will encounter and use the wordformulary. As explained previously, a formulary is a listing of the drugs covered by the plan. The plan must provide the definition of formulary, indicate how the formulary impacts any one of the plans, and explain how to use the formulary guide. (A single plan may have as many as many as four formularies.) The following statement must be included in the plan’s marketing material:

[Plan Name] covers both brand-name drugs and generic drugs. Generic drugs have the same active-ingredient formula as a brand-name drug. Generic drugs usually cost less than brand-name drugs and are rated by the Food and Drug Administration (FDA) to be as safe and effective as brand-name drugs.

Marketing materials must also include the following disclaimer: “This is not a complete list of drugs covered by the Part D plan. For a complete listing please call [customer service telephone number] or log onto [plan’s Web site address].”

The fact that the formulary can change during the year must also be stated, as must an explanation of how to obtain an exception to the Part D plan’s formulary, utilization management tools, or tiered cost sharing.

Prescription drug plans are required to provide evidence of coverage (EOC) to all enrollees annually. The EOC must include the plan’s service area, the annual deductible amount, initial coverage limits, and cost sharing between the initial coverage limits and the annual out-of-pocket threshold. Major exclusions and limitations must be stated, as must all monetary limits and any restrictive policies that might impact an enrollee’s access to drugs or services. The EOC must also explain how to access benefits, state that extra help is available to people with limited incomes, and describe the grievance, coverage determinations, and exceptions process, as well as appeal rights and procedures. It must also describe disenrollment rights, responsibilities, and procedures.

Prescription drug plans must also send an explanation of benefits (EOB) to enrollees in any month during which enrollees may use their benefits. This EOB is similar to EOBs sent by Medicare supplement companies to their policyholders, so MS/MA producers should be familiar with it. The EOB must include:

  • the items or services for which payment was made and the amount of the payment;
  • a notice of enrollees’ right to request an itemized statement, their appeal/grievance rights, and the exceptions process;
  • the cumulative, year-to-date amount of benefits relating to any deductible for the current year, the initial coverage limit if there is one, and total out-of-pocket expenditures;
  • the cumulative year-to-date total of incurred costs to the extent practicable; and
  • any applicable formulary changes for which the plan is required to provide notice.

With regard to the marketing for both companies and producers: no company or producer may discriminate based on race, ethnicity, religion, gender, sexual orientation, health status, or geographic location within the service area. In addition, these discrimination factors apply to targeting of advertising, such as only to high-income areas or only to certain prospects enrolled in Medicare, such as the over-age-65 beneficiary group, as opposed to those under 65.

MIPPA 2008 Marketing Protections

The Medicare Improvement and Patient Protection Act incorporated a number of protections for Medicare beneficiaries with regard to how both MA and Part D plans may be marketed. These protections were proposed by CMS in May 2008. By incorporating them into its provisions, MIPPA made them law. The marketing guidelines for MAPD and stand-alone PDPs are the same as those discussed in Chapter 4 for all MA products. Study these regulations in detail to avoid running afoul of the current marketing parameters established by CMS as well those outlined in MIPPA 2008. These requirements include the following:

  • a prohibition on cold calling and an expansion of the current prohibition on door-to-door solicitation to cover other unsolicited circumstances. Any appointment with a beneficiary to market health-care-related products must be limited to the scope that the beneficiary agreed to in advance. Cross-selling of non-health-care-related products to a prospective MA or Part D enrollee is prohibited;
  • a prohibition on sales activities at educational events, such as health information fairs and community meetings or in areas such as waiting rooms where patients primarily intend to receive health-care-related services;
  • strict adherence to “Scope of Appointment” rules, particularly in reference to whether an appointment is for the purpose of discussing Part D only, or whether the consumer is interested in discussing MAPD. There is a difference, and the agent must be aware that if the consumer wishes to discuss Part D only and has initialed that box on the SOA, the agent cannot begin a discussion of MAPD unless the consumer signs another “Scope of Appointment” form for another discussion of MAPD;
  • a limit on the value and type of promotional items offered to potential enrollees;
  • the requirement that MA organizations using independent agents to market MA and Part D plans use only state-licensed and company-certified agents for this purpose;
  • the requirement that MA organizations establish commission structures for sales agents and brokers that are level across all years and across all MA plan product types (for example, HMOs, PPOs, and private fee-for-service plans). Commission structures for prescription drug plans also must be level across the sponsors’ plans. These requirements are designed to discourage “churning” of beneficiaries from plan to plan each year in a manner that earns agents and brokers the highest commissions and ensures that beneficiaries receive the information and counseling necessary to select the best plan based on their needs; and
  • clarification to one approach to calculating fines, or civil monetary penalties, against Medicare Advantage or Part D plans that violate Medicare rules in ways that adversely affect beneficiaries. CMS would have greater flexibility in determining penalty amounts and would have clear authority to levy a penalty of up to $25,000 for each enrollee affected, or likely to be affected, by the violation.

There has been a great deal of frustration among insurance producers regarding the sale of Part D “stand-alone” products. Because an agent is only allowed to discuss his or her own plans, both the client and the agent are limited in what the client expects the agent to do when it comes to comparing their plan with another. Other complications arise with the limited timeframes in which consumers and agents are allowed to discuss MA/MAPD/PDP plans. A serious discussion of Part D plans involves a lot of time, and agency forces across the country feel that Medicare and CMS have “used” them to sell the Part D product for a very small commission. As a result, many agents who would have preferred to help Medicare enrollees have instead had to refer them to “Medicare.gov” and the subsequent “Part D Drug Finder” program accessible from this same Web site. During 2012, CMS made great strides in simplifying the navigation of the Part D Drug Finder. In addition, some MAPD plans have started to offer only one “basic” plan and one “enhanced” plan, which will enable enrollees and producers to draw meaningful comparisons between plans from the same sponsor.

5.9 - Summary

This chapter presented information about Part D implementation and marketing. You will have gained an understanding of the foundations of the Part D program, which should help you in marketing terminology and specifications of Part D. As this chapter described, the problems in the introduction of Part D have mostly been overcome, and sales of the product from this point forward should be relatively simple if the rules are followed regarding stand-alone Part D and MAPD. Low-income assistance is within the realm of Medicaid—you should not involve yourself in advising clients on Medicaid, other than to direct them to seek correct information from Medicaid authorities. Also, this chapter cautioned against signing someone to a Part D plan who is currently on a group health insurance plan with an employer. Complaints should be directed to the company. Again, producers must remember that all MA, MAPD, and PDP plans are agreements between CMS and the various companies for a period of one year. This means that many plans will change annually. Therefore, the producer must familiarize him- or herself with the provisions of a client’s current plan when comparing it with any new plan.

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