How 2022 Medicare Part D Affects Your Prescription Costs

By: David Stubblefield, CFP®, CDFA™, Vice President, Senior Financial Planner
Thankfully, our economy is finally beginning to recover from the worst medical crisis in modern U.S. history. However, the rising cost of goods and services is still a major, ongoing concern for all Americans. Inflation is affecting every aspect of our daily lives, including the cost of prescription medications. For millions of retirees and older Americans living on fixed incomes, it’s even more troublesome. 

Medicare
However, there’s some good news for individuals on Medicare: Having Medicare drug coverage (Part D)—the program that provides prescription drug benefits through a number of qualified private plans across the country—helps with those expenses. 

Medicare Plans: Two Ways to Get Coverage
You can enroll in Medicare during certain times of the year, and there are two main ways to obtain coverage:
  • Original Medicare includes Medicare Part A (hospital insurance) and Part B (medical insurance). If you want Part D (prescription coverage), you can join a separate drug plan. To help pay for out-of-pocket expenses (such as your 20% coinsurance), you can also purchase supplemental coverage. These plans can be used with any doctor or hospital in the U.S. that accepts Medicare.

  • Medicare Advantage, also referred to as Part C, is offered as an all-in-one alternative to the Original Medicare plans offered. These bundled plans include Part A, Part B, and usually Part D. Some Medicare Advantage plans have lower out-of-pocket costs than Original Medicare. You use doctors who are in the plans’ networks, and the plans offer additional benefits such as vision, dental, hearing, and more.

For more information regarding specific rules for Medicare enrollment, plans, costs, and penalties, visit www.ssa.gov.¹

Who Determines Medicare Part D Premiums?
Part D remains one of Medicare’s most popular programs, with more than 48 million Medicare beneficiaries enrolled for prescription drug coverage. The Centers for Medicare & Medicaid Services (CMS) continues to analyze changes to the Part D program carefully to identify opportunities for improvements and reducing costs.² 

For the past four years, CMS has taken a fresh approach to its healthcare policy in an effort to lower prices and improve benefits for program recipients. Since 2017, CMS has prioritized flexibility and competition regarding Part D rates. As a result of these efforts, premiums for Part D coverage have been reduced by 12%. Additionally, these reductions have been accompanied by new and better benefits, with program beneficiaries enjoying more plan options.³

Find Out More About Medicare Part D
If you already have Medicare Part D coverage, you probably know prescription drug plans vary all across the board depending on the state where you live. Part D plans are managed by private insurance companies, and they follow rules set by Medicare. That’s why it is so important to do your homework each year to learn about changes in coverage and costs that directly affect you, especially if you’ve relocated from one state to another.

If you don’t have Part D coverage yet but would like to learn more before it’s time to enroll, we recommend you read the article on our website, “What You May Not Know About Medicare Prescription Coverage” for detailed information and helpful resources to guide your decisions. 

All Medicare Part D plans offer a broad choice of brand name and generic drugs available at your local pharmacy or through mail order. If you’re able to afford a higher premium rate for your prescription coverage, some plans cover more drugs than others with lower premium rates or offer a wider selection of pharmacies. You’ll want to do your homework by visiting www.medicare.gov/plan-compare and choose the plan that best suits your individual healthcare needs and budget.

What if I don’t enroll in Part D by the deadline?
If you don’t enroll in Medicare drug coverage (Part D) or have other creditable prescription drug coverage for 63 or more days in a row after your initial enrollment period, you may have a late enrollment penalty added to your premium each month as long as you have Medicare drug coverage. 

The penalty is calculated by multiplying 1% of the “national base beneficiary premium” ($33.06 in 2021) by the number of full, uncovered months that you were eligible for Part D but not enrolled in a creditable plan. Round that number up to the nearest dime and that is how much will be added to your premium each month as a penalty.

You can avoid this penalty by enrolling in Medicare drug coverage as soon as you are eligible, switching to Medicare drug coverage if you lose other creditable coverage (such as a former employer, TRICARE, etc.), or providing documentation to show you have other creditable drug coverage to your Medicare provider when they ask.  

Projected Changes and Updates for 2022
Each year, CMS releases the projected average basic monthly Part D premium amount to help Medicare beneficiaries understand overall premium trends prior to the open enrollment period (during which qualifying individuals select from plan options for the upcoming year). On July 29, 2021, CMS announced the average basic monthly premium cost for standard Medicare Part D coverage is projected to be approximately $33 per month in 2022.

The average 2022 basic Part D premium is projected to increase by 4.9% from $31.47 in 2021. The projected average basic premium is calculated based on plans’ expectations of per capita drug spending in the coming year. CMS anticipates releasing the final 2022 premium and cost-sharing information for 2022 Medicare Part D plans in mid- to late-September 2021.

High Income Affects What You Pay for Prescription Coverage
It is important to note that if you earn a high income, you have to pay higher monthly premiums for your Medicare Part B and Part D coverage. In 2022, the following income brackets have been adjusted according to inflation. If your income is above $88,000 if you file individually (up from $87,000 in 2021) or $176,000 (up from $174,000 in 2021) if you’re married and file jointly, you’ll pay an extra amount in addition to your plan premium. For example, if you earn over $88,000 per year, you meet the first tier of additional Part B premium costs. Your cost will increase from $144.60 to $202.40.4 (The income formula used by Medicare is basically your adjusted gross income (AGI) from your income tax return plus tax-free interest added back.) Often this is referred to as “Part D-IRMAA.” If you don’t pay the extra amount, you could lose your drug coverage and may not be able to enroll in another plan right away.1

Next Steps
As you’ve probably discovered, Medicare and Social Security rules can be quite complex. Before you make any decisions regarding current or new coverage, it is in your best interest to visit www.ssa.gov for more information and to take advantage of online services and calculation tools. Or, you can speak to a representative by calling Social Security toll-free at 1-800-772-1213 or at 1-800-325-0778 (TTY) if you’re deaf or hearing impaired. 

Also, be sure to mark these dates on your calendar if you want to participate in Medicare Part D next year: Medicare open enrollment will run from October 15 to December 7, 2021, for coverage beginning January 1, 2022. 

We’re Here to Help
Feeling confident that you’re financially prepared for the potential impact of the decisions surrounding selection of your Medicare benefits during your retirement years is important. Commerce Trust Company will listen to your concerns and talk with you regarding financial issues that may require adjustments to your portfolio and retirement plan. Contact us today to learn more about how we can help protect your financial well-being now and in the future.

1Medicare and You: 2021,” U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services, CMS Product No. 10050-16, September 2020.
²The Centers for Medicare & Medicaid Services, “CMS Releases 2022 Projected Medicare Part D Average Premium,” https://www.cms.gov/newsroom, July 29, 2021.
3The Centers for Medicare & Medicaid Services, “CMS Releases 2022 Medicare Advantage and Part D Rate Announcement,” https://www.cms.gov/newsroom, January 15, 2021.
4Medicare Haven, “Changes in Medicare 2022: Key Takeaways,” https://medicarehaven.com/medicare/changes/, accessed August 8, 2021.

The opinions and other information in the commentary are provided as of August 23, 2021. This summary is intended to provide general information only, and may be of value to the reader and audience. 

This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such. 

Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. 
 
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ABOUT THE AUTHOR

David Stubblefield Commerce Trust Company
David Stubblefield, CFP®, CDFA™ Vice President, Senior Financial Planner Commerce Trust Company 
David is a financial planner with Commerce Trust Company. He is a member of the financial advisory services team, a dedicated financial planning practice within Commerce Trust that provides objective financial advice to clients.

Following a thorough assessment of a client’s unique situation and thoughts regarding wealth, David develops holistic and coordinated plans to help clients meet their short-term and long-term goals as well as take full advantage of various planning, tax, and investment strategies along the way.

His areas of focus includes planning for financial independence, retirement, divorce, executive compensation, estate preservation, and business succession. David joined Commerce in 1995 and has held positions in private banking, credit analysis, commercial business development, and retail sales.

David received his Bachelor of Science in business administration from Southeast Missouri State University. He holds both the CERTIFIED FINANCIAL PLANNER™ and Certified Divorce Financial Analyst™ designations. Additionally, David is a member of the Financial Planning Association and the Institute for Divorce Financial Analysts.