Page Reviewed / Updated - Apr. 2016
Prescription drugs are a major component of the overall cost of caring for the elderly. By some reports, persons sixty-five and older spend an average of over three percent of their income on prescription drugs. That percentage is even higher when over-the-counter medications are included. While Medicare Part D pays for some medications for those enrolled in a plan, it is reported that over sixty-five percent of seniors’ prescription costs are out-of-pocket.
There are three ways by which seniors can better afford the cost of prescription drugs. First is make sure one understands their insurance's prescription benefits, be that Medicare, Medicaid or supplementary insurance. The second is to find financial assistance that helps pay for medication or for insurance premiums, co-pays and deductibles. Finally, the third and frequently overlook option, is to lower their costs through a variety of methods described further down this page.
Medicare is a federal health insurance program for persons aged sixty-five and older which is composed of multiple parts: Medicare Part A, Part B, Part C and Part D. Prescription drugs are covered by Medicare Part D. Part D plans are sold by private insurance companies either as a standalone plan known as a Medicare Prescription Drug Plan (or PDPs) or as part of a Medicare Advantage Plan (or MA-PDs) which groups Parts A, B and D coverage into a single plan. Medicare Part D’s contributions for 2016 are outlined in the table below.
|2016 Medicare Part D Coverage and Donut Hole Limits|
|Annual Prescription Spending||Coverage Area||Individuals Responsibility|
|$0 - $360||Deductible Period||Seniors pay 100%|
|$360 - $3,310||Coverage Begins||Seniors pay co-payments of 25%|
|$3,310 - $7,062.50||Donut Hole||Seniors pay 45% for brand name drugs and 58% for generics|
|$7,062.50 and up||Catastrophic Coverage||Seniors pay co-payments of 5%|
Medicare Extra Help
Extra Help is a program that provides additional financial assistance to seniors with limited resources to help pay for prescription drug costs. Seniors are eligible if their total assets (not including their home) are valued at less than approximately $13,640 for individuals or $27,250 for married couples. Learn more about Extra Help or apply online.
One cannot be concurrently enrolled in Medicare Part D and a Medicare Supplemental Insurance plan for prescription coverage. Supplemental plans are sold by private companies and have different coverage depending on the type of plan. Tracking those benefits is beyond the scope of this article.
Medicaid is a state run, health insurance program for low income and disabled individuals. The definition of “low income” changes by state but typically an individual must have an annual income of less than $26,000 and assets of less than $10,000. All 50 states and Washington DC’s Medicaid programs cover the majority of the cost of prescription drugs for participants. Program participants are usually required to make small co-payments (also referred to as share of cost) for their medications. Per prescription co-payments range from as low as $.50 per prescription to about $3.00. Some states have limitations on the number of brand name drug prescriptions they will cover per month or per year. This limit typically lies between 5-8 prescriptions per month. Read more about qualifying for Medicaid and Medicaid Prescription Drug benefits in your state.
In addition to the federal Extra Help program, many state governments provide seniors with financial assistance to help with the cost of medications. These programs typically provide assistance as Medicare Wraparound Programs, meaning they help seniors paying the extra costs which their Medicare Part D plans don’t cover. Alternatively, these programs provide assistance making Medicare Part D premium payments instead of paying for the extra prescriptions costs. Unfortunately, not every state offers assistance, a list of states which do follow. Note that with the launch of the Affordable Care Act and the projected closing of the Donut Hole, several of these programs have been cancelled. These are indicated with a asterisk.
|State Assistance and Medicare Wraparound Programs|
Delaware RX Assistance Program
Illinois Cares Rx*
Indiana Hoosier Rx Assistance
Massachusetts Prescription Advantage
Maryland SPDAP Subsidy
Maine DEL and RX Plus
Missouri Rx Plan
Montana Big Sky Rx Program
Patient Assistance Programs, or PAPs for short, are programs run by nearly all the major pharmaceutical companies. In these programs, assistance is offered to low income individuals by providing them with reduced cost or free medications. These programs are typically open to both individuals with insurance and those that do not have insurance although sometimes the pharmaceutical companies maintain two different programs for these two groups.
To participate in a PAP, applicants are usually required to show proof of income (usually a tax return will suffice), their doctor’s prescription for the required medication and documentation of any insurance coverage they have. Learn more about Patient Assistance Programs and find links to major pharmaceutical company programs here.
Many pharmaceutical companies make discount coupons available online for their brand name drugs. Often these coupons will discount the cost of a brand name drug so that it equals the cost of the generic version which is particularly helpful for seniors using their Medicare coverage. One can search for drug coupons by medication name here. Most coupons can simply be printed from a webpage and brought to the pharmacist. Be wary of any website that asks you to pay to receive the discount coupon and any websites that request excessive personal information to provide you with the discount coupon.
NeedyMeds.org, a non-profit organization, offers a free Prescription Drug Discount Card which can save up to 80% off the cost of prescription medications. The card is accepted at most major pharmacies including Walgreens, CVS, Walmart and RiteAid. Learn about how prescription drug discount cards work.
The out-of-pocket costs paid for prescription drugs are considered tax deductible under the Medical and Dental Expense Tax Deduction. In order for this deduction to be relevant to an individual tax filer, the total sum of their medical and dental expenses must be greater than 7.5% of their adjusted gross income. Fortunately for seniors, the range of items and services that can be considered a medical or dental expense is quite broad and because most seniors have fixed incomes, it is common for their expenses to exceed 7.5% of their adjusted gross incomes. In addition to our analysis of the medical and dental expenses tax deduction, one can read the IRS’ webpage on the subject. It is worth noting that over-the-counter medications are not considered tax deductible.
When a pharmaceutical company releases a new drug, the US Food and Drug Administration allows that company to have a patent on the drug for several years. As the patent expires other pharmaceutical companies are allowed to copy the drug and sell generic versions of it. Generic versions are less expensive than brand names for two reasons. The manufacturers of generics do not shoulder the research and development costs and can therefore sell the drugs at a lower price and the increased competition further drives the cost down.
There is an ongoing and sometimes heated debate whether generic drugs are of lower quality. The final decision whether to use a brand name or generic drug should be up to the individual and their doctor. However, two things are certain. Generic drugs are pharmacologically the same as their brand name equivalents and generic drugs are considerably less expensive for the consumer.
The use of a mail order or online pharmacy can provide modest saving over a retail pharmacy. Often the cost of the medication is the same but the insurance company allows an individual to receive a greater quantity of their medication if they use a mail order pharmacy. For example, an individual might have a $20 co-pay for a 30-day supply of a medication filled at a retail pharmacy. They may be able to receive a 90-day supply by using a mail order pharmacy for the same $20 co-pay.
As valuable as the costs saving of mail order is the convenience. Aside from not having to travel to the pharmacy, most mail order pharmacies will call the individual to remind them when it is time to refill a prescription or when a new prescription is required. Some mail order pharmacies will even call the doctor on the individual’s behalf to request a prescription refill.