Medicare plays a vital role in keeping medical care affordable for our nation's seniors, and its importance is only expected to grow in the coming decades. The program's heightened importance can be traced to two ongoing trends.
Medicare's growing importance for older Americans
First, we have a major demographic shift under way as baby boomers leave the workforce and become eligible for Medicare at age 65. There are more than 70 million baby boomers, which means the number of eligible beneficiaries in Medicare is set to explode. Mind you, these beneficiaries are also living longer than ever, too.
Secondly, medical inflation is handily outpacing wage growth and the national inflation rate, which means seniors -- especially lower-income and even some middle-class seniors with little-to-no retirement savings -- could lean heavily on the program to assist with their medical expenses during their golden years. Over the past decade, medical inflation has outpaced the national rate of inflation in all but one year.
Medical inflation is particularly apparent when it comes to prescription drug inflation, which is typically handled under Medicare Part D, aka, the prescription drug plan. A study conducted by AARP found that seniors had witnessed a better than doubling in prescription drug costs over just a seven-year period (2006 to 2013), with inflation for drugs covered by Part D showing no signs of slowing. With no annual cap on the amount of money a beneficiary can be charged out of pocket by Medicare Part D, it pays to understand the actions you can take to lower your Medicare prescription drug costs.
Seven strategies to lower your Medicare prescription drug costs
Here are seven strategies to consider that could help lower what you'll pay out of pocket for Medicare Part D.
1. Don't automatically re-enroll
I can't emphasize this point enough, but one of the best ways you can help lower your prescription drug costs under Medicare is to research which Part D plan offers the best value for you each and every year, as opposed to automatically reenrolling in your existing plan. Note, I didn't say "price," because the cheapest plan may not offer you the best value. Cheaper plans may have higher out-of-pocket expenses, resulting in you spending more than if you had purchased a plan with a higher monthly premium.
According to the Kaiser Family Foundation, Medicare Part D re-enrollees faced an estimated 13% increase in monthly premiums in 2016, to an average of $41.46 per month from $36.68. Shopping around and comparing the slightly more than two dozen Part D plans offered through Medicare Plan Finder can help narrow your search to only the best plans for your medical needs.
2. Learn about plan limitations
In addition to never automatically reenrolling in a Part D plan, you should also understand what sort of hurdles might be involved with each plan you're considering. As specialty and brand-name drug costs have skyrocketed, private insurers contracting with Medicare have, in some cases, added more hoops that need to be jumped through before more expensive medication can be covered.
For example, some prescription drug plans may require patients to go through "step therapy" before being administered a costly drug. This involves the patient trying less-costly alternatives first before being given a specialty or branded therapy.
You'll also want to pay attention to drug restrictions for each plan you're considering. Plans may limit the number of doses of certain drugs you'll be covered for each month, which can lead to you having to pay full price for certain drugs. This is where really digging deep and comparing plans can be critical to saving you money. Understanding how each plan you're considering treats your current medications is a must.
3. Stay within your network
It may not be a well-known fact, but most insurance companies offering a Part D plan have preferred pharmacies for dispensing prescription drugs. Plan providers and pharmacies forge deals that can result in substantially lower costs for plan members if they stay within the preferred network. Based on data from Kiplinger, just 7% of Part D plans had preferred in-network pharmacies five years ago. Today, 85% of Part D plans have preferred in-network pharmacies.
An example provided by Kiplinger notes that with a Humana-Wal-Mart prescription drug plan, you'll pay 35% of the cost for non-preferred drugs if you stay within the preferred network of pharmacies. Go outside this preferred network, and your costs jump to 45%-50% of non-preferred drug costs.
4. See if generic drugs are an option
Your doctor is always on the lookout for your well-being, but sometimes you have to keep your financial well-being in mind, too, by requesting generic alternatives to medications.
The U.S. Food and Drug Administration puts generic drugs through the same rigorous efficacy tests as innovator drugs, so they should work just as effectively as more expensive branded therapies. The big difference is that generic drugs typically cost between 80% and 90% less than branded therapies, which can mean a lot of extra money in your pocket.
It's worth noting that not all medications can be dispensed as a generic. However, with generic drugs comprising a whopping 88% of prescriptions written today, it can't hurt to ask your doctor.
5. Visit your doctor often
Spending money now can have a big impact later in life, which is why you shouldn't put off visiting your doctor for routine checkups.
While it might seem tedious to visit your doctor once or twice annually, even if you feel perfectly healthy, these visits could result in catching potentially chronic ailments early, allowing you to mitigate their impact, or perhaps even reverse them entirely. Chronic conditions that aren't caught early by a doctor are what can turn into potentially expensive ailments to treat later in life.
6. Enroll on time
This probably goes without saying, but make doubly certain that you enroll for a Medicare Part D plan on time.
Every year, beginning on Oct. 1, insurers that have contracted with Medicare begin publishing the details of next year's plans. This includes monthly premium pricing and what each plan covers. Between Oct. 15 and Dec. 7, you'll have the opportunity to decide which plan is the best value for you and enroll. Once you've made your selection, your coverage will kick in on Jan. 1.
However, if you miss this enrollment period, you'll be charged a penalty once you do enroll. This penalty works out to 1% of the national base beneficiary premium (which is $34.10 in 2016) multiplied by the number of full uncovered months you remain unenrolled. Worst of all, this penalty is carried with you for the life of the program, meaning you'll be charged a penalty every single year thereafter that you're enrolled.
Do yourself a favor and never be late enrolling in Part D!
7. Consider a Roth IRA
Lastly, one of America's greatest retirement tools, the Roth IRA, can be particularly helpful when you reach the eligible age to enroll in Medicare.
Americans have an abundance of retirement tools to choose from, and some of the most popular, like an employer-sponsored 401(k) or Traditional IRA, defer your taxes until you begin making withdrawals. Unfortunately, both of these popular plans have minimum required distributions in place once you reach age 70-1/2, meaning that in addition to Social Security income and whatever other channels of income a person has, the money you receive in retirement could lead to you earning too much money and paying a Medicare surcharge. Admittedly, the level where the monthly surcharge kicks in is pretty high for an individual ($85,000), but it's certainly not impossible to reach.
A Roth IRA is funded with after-tax dollars and allows your investment gains to grow completely free of tax for life, as long as you make no unqualified withdrawals. This means regardless of how much you decide to withdraw from a Roth IRA during retirement, it won't be counted toward your annual income. A Roth could help keep you safely below the income threshold where monthly Medicare premium surcharges would kick in.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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