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Medicare Drug Plan: What It Is, How to Use It

Here's a simple guide to Medicare 'Part D' coverage, to help you figure out what works best for you.
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Medicare Part D, the section of the government's health insurance program for seniors that helps pay for prescription drugs, can look confusing -- so here's a guide to help you understand what's covered, and what to look for in the benefits.

This is an outline of what to look for generally. Keep in mind that the pricing of these plans is very complex, but in general, expect to pay more for better coverage.

Standard Minimum Plan

Medicare prescription drug coverage is only available from private companies that have been approved by Medicare.

All private companies that are approved to offer Medicare's prescription drug benefit must offer a minimum drug benefit, known as the Standard Medicare Drug Benefit. However, many have designed their offerings differently, generally offering more benefits.

How to Access Coverage

In order to get Medicare prescription drug coverage, you must enroll in a private drug plan. There are two ways to get that coverage: standalone prescription drug plans and Medicare Advantage plans.

Standalone Prescription Drug Plans, or PDP, provide coverage only for prescription drugs. Upon enrolling in a PDP, you will receive your Medicare prescription drug benefits and pay a separate Part D premium to the plan. (Your premium pays part of the total cost of the plan; the remainder is funded by the government.) You then combine this coverage with your Original Medicare benefits and any other health care coverage.

Medicare Advantage Prescription Drug Plans, or MA-PDP, provide you with "one-stop shopping" for all your Medicare benefits, including hospitalization (Part A), medical services (Part B) and prescription drugs (Part D). These plans will also receive government funding.

Some plans will charge you a premium, while others won't.

In both cases, insurers offering Medicare prescription drug coverage are required to provide at least the minimum standard benefit mandated by the Medicare program.

How Will Medicare Part D Affect My Other Coverage?

This new Medicare benefit will impact other existing coverage options. Keep in mind a few things.

If you have employer or union retirement coverage that is considered to be at least as good or better than the Standard Medicare Prescription Drug Benefit (or so-called "creditable" coverage), chances are you'll want to stick with it. However, the Part D benefit gives all seniors a chance to consider alternatives to how they pay for their medications.

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Contact your former employer's or union's benefits administrator to determine whether it is "creditable," if you're not sure. If it is and you decide to enroll in Part D later, you won't face a late fee or higher premium. Keep in mind, though, that if you drop your current drug coverage, you may not get it back.

If you currently own one of the Medigap policies that includes prescription drug coverage -- H, I or J -- you have several options. While you can retain the policy as-is, the prescription drug coverage is not considered to be as good as the new Medicare benefit. You can choose to keep the policy, but have the prescription drug benefits removed and your premium lowered. Another option: switch to a different Medigap policy (A, B, C or F) without additional underwriting, if offered by your insurer. In these last two cases, you can also enroll in a plan offering Medicare prescription drug coverage.

If your state has and will continue to support a State Pharmacy Assistance Program, you could be eligible for assistance to help you with the out-of-pocket costs Medicare's new prescription drug program does not cover. With Medicare's new Part D benefit, states with such assistance programs have redesigned these programs.

However, no two states' programs are alike. For example, one state may help qualifying residents to cover some of the monthly premiums they might face when enrolling in a drug plan. Another state may help pay for drugs only after a senior pays a certain amount out of pocket for them.

Check out the

National Conference of State Legislatures

state pharmacy assistance resource

to find out more, or contact your State Pharmacy Assistance Program. Ratings issues financial strength ratings on each of the nation's 8,600 banks and savings and loans, which are available at no charge on the

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Gavin Magor joined Ratings in 2008, and is the senior analyst responsible for assigning financial strength ratings to health insurers and supporting other health care-related consumer products, including Medicare supplement insurance, long-term care insurance and elder care information. He conducts industry analysis in these areas. He has more than 20 years' international experience in credit risk management, commercial lending and analysis, working in the U.K., Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.