Medicare Part D Changes Coming in 2016

Most Medicare Part D beneficiaries will pay higher premiums next year if they stick with their current prescription drug plan, according to a Kaiser Family Foundation and Georgetown University analysis of the Medicare Part D plans that will be offered in 2016. Deductibles and other cost-sharing requirements are also projected to increase, unless existing beneficiaries take action to switch plans. Here's a look at the Medicare Part D changes you can expect to see next year.

Fewer choices. Part D beneficiaries will be able to choose among an average of 26 prescription drug plans in 2016, down from 30 in 2015 and a peak of 55 in 2007. The number of options varies by region and ranges from 19 in Alaska to 29 in Pennsylvania and West Virginia. There will be 886 plans offered nationwide in 2016, an 11 percent decrease from 2015 and the fewest plans ever offered by the 10-year-old program.

Higher premiums. Almost all Medicare Part D beneficiaries (83 percent) are projected to pay higher premiums in 2016, unless they switch plans. Some 4.4 million enrollees will see their premiums go up by at least $10 per month. Only 448,000 retirees will pay at least $10 less if they make no changes. If all Medicare beneficiaries stay in their current plans, the KFF projects that the average monthly premium will be $41.46, up 13 percent from 2015. Average premiums will range from $29.70 per month in New Mexico to $49.61 monthly in New Jersey. However, over a third (36 percent) of people paying Medicare Part D premiums will see their payments top $60 per month in 2016, up from only 10 percent in 2015. And nearly 400,000 enrollees are projected to pay premiums of $100 per month or more.

Premium hike for high income beneficiaries. Retirees who earn more than $85,000 for individuals and $170,000 for couples pay a monthly surcharge that is added to their Part D plan premiums. High income retirees will pay an additional $12.70 to $72.90 per month, with the biggest charges going to seniors with the highest incomes. KFF estimates that nearly 6 percent of prescription drug plan participants will make these additional payments in 2016.

Bigger deductible. The standard Medicare Part D deductible will increase by $40 to $360 in 2016, the biggest increase in the history of the program. Two-thirds of Part D plans (67 percent) will charge a deductible in 2016, up from 58 percent in 2015.

More out-of-pocket costs. Most prescription drug plans separate their covered medications into tiers with different cost-sharing requirements. Some tiers have set copayments for each prescription, while others charge a percentage of the cost of the medication. "There has been a trend toward the use of coinsurance in place of flat copayments for some formulary tiers," according to the KFF report. "Coinsurance typically means higher out-of-pocket costs for more expensive drugs, such as those over $200 per month."

Smaller coverage gap. Medicare Part D plans have a coverage gap that begins when a retiree has spent $3,310 on covered drugs and ends when catastrophic coverage kicks in after out-of-pocket costs reach $4,850 in 2016. While in the gap beneficiaries are responsible for 45 percent of the cost of covered brand-name medications and 58 percent of the price of generic prescription drugs. The 2010 Affordable Care Act contained provisions that are gradually reducing the coverage gap and will completely eliminate it by 2020.

Preferred pharmacy networks. Most Part D plans (85 percent) now have preferred pharmacies where retirees pay lower out-of-pocket costs for their medications, but costs are higher if they use a pharmacy outside the network. Only 7 percent of Part D plans offered preferred pricing at specific pharmacies in 2011.

There's still time to switch. If your Medicare Part D costs are projected to increase significantly in 2016, it's worth shopping around to see if another plan will cover your medications at a lower price. The Medicare Plan Finder website, medicare.gov/find-a-plan, will tell you the cost of every plan in your area that will cover the medications you need. Retirees can switch to a new Part D plan for 2016 during the open enrollment period from October 15 to December 7.

Emily Brandon is the senior editor for Retirement at U.S. News. You can contact her on Twitter @aiming2retire, circle her on Google+ or email her at ebrandon@usnews.com.