The Lowest Medicare Part D Premiums Aren’t Always the Best Deal

It’s just human nature. When we buy something, we want to pay the lowest price and get the best deal. That same principle applies to America’s seniors when they turn 65 and have to choose a Medicare Part D Prescription drug plan. The problem, though, is that choosing the lowest premium Part D plan may actually be more expensive in the long run.

89% of Medicare beneficiaries take prescription medications. 54% take multiple prescription drugs. So, choosing a Part D plan that meets your needs without breaking the bank is important. But how do you choose just the right plan when the average retiree has a choice of 54 Medicare plans that contain Part D drug coverage, including 23 Medicare stand-alone drug plans and 31 Medicare Advantage drug plans? In all, there are 766 Medicare Part D stand-alone prescription drug plans out there with premiums ranging from $7 to $99 per month.

75% of Medicare beneficiaries say Medicare is confusing, and since no one really wants to wade through dozens of drug plans, the easiest thing to do is pick the plan with the lowest premium. But a higher monthly premium may actually save you money.

There are three factors that can make a big difference in total drug costs:

  • The cost per drug tier: Most drug plans have five tiers.
    • Tier 1 includes the cheapest generic drugs.
    • Prices increase with each tier with Tier 5, specialty drugs, being the most expensive.
    • Every plan determines the drugs in each tier and how much you’ll pay.
    • Most Tier 1 and Tier 2 medications come with copayments, a flat dollar amount like $1 or $10.
    • Plans generally charge a coinsurance, a percentage of the costs, for drugs in Tier 4 and Tier 5.
    • Depending on the plan, Tier 3 can be either a copayment or coinsurance.
  • The retail cost and copayments or coinsurance: What you pay can depend on the retail price of a drug and the plan’s cost sharing. For example, in Wisconsin, a Tier 3 drug in one plan has a $47 copayment; a second plan charges 17%. If the retail cost of a drug is $100, a person would pay either $47 or $17. However, if the retail cost is $350, the cost-sharing is $47 in the first plan and $59.50 in the second. And, with coinsurance, if the retail price of a drug goes up, what you pay will also increase.
  • Medications subject to the Part D deductible: The same low-premium plan (in point 1) applies the deductible to Tier 2 medications. That means the drug plan member can pay up to the first $480 this year, instead of a flat copayment in plans with higher premiums that do not apply the deductible to Tier 2 drugs.


One resource that may help is the Medicare Plan Finder. It’s a tool provided by Medicare that allows you to enter your prescriptions and pharmacies, links to the available Part D plans, and when you click on a link it will give you the estimated total drug cost plus the plan premium cost for the remainder of the plan year.

Financial writer Diane Omdhal tells the story of one woman who discovered that the cheapest premium Part D Plan was much more expensive for her.

“Joanne takes only one medication. She thought that the plan with the lowest premium available to her, $6.90, would be her best option. However, then she looked more closely. The plan’s copayment for her drug, a Tier 2, was $19. The total cost for the year (the monthly premium plus copayments) would be $310.80.

She looked at a second plan with a premium of $9.80 and a copayment of $10 for her drug. However, her drug, also a Tier 2 in this plan, was subject to the deductible. She would pay the retail cost for the drug until meeting the deductible in October. Her total drug costs would be $605.60.

Finally, Joanne found a plan with a $14.60 premium. In this plan, her drug was a Tier 1 with a $4 copayment. Her annual costs would be $223.20. Paying more in premiums saved her money.”


There are a lot more exciting things to do than research Medicare Part D Prescription Drug plans, but there aren’t any that will pay better dividends. So, take the time to find a Part D plan that’s best for you and your budget. And even if you think you have a great plan, review it every year. Insurance companies can change all of these:


  • the monthly premium.
  • the annual deductible.
  • your out-of-pocket co-pays.
  • the drug formulary (listing of medications the plan covers). Just one medication leaving your plan’s formulary can cost thousands over the course the year.
  • the network of pharmacies.
  • the pharmacy cost-sharing.
  • coverage rules for medications (quantity limit, step therapy, prior authorization)
  • coverage of medications in the Coverage Gap, commonly known as the Medicare donut hole.  Increasingly, plans are dropping this type of coverage.


Just because your current plan covers your needs this year, doesn’t mean it will next year. Do your homework.

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