In their infinite generosity, the Feds now subsidize the cost of prescription drug plans that can be purchased from private insurance companies.

(Portions below are excerpted from “The Lazy Man’s Medicare Book”)

Each of these companies can price their drug plans where they want to, compile their own list of drugs to be covered (formulary) and offer different levels of benefit to their customers.

Here are the problems: the construction of each drug plan sounds very complicated to the non-insurance professional; there are deductibles, co-pays, co-insurance and a big scary donut hole to contend with.

Additionally, the formularies and premiums can change from one year to the next and each individual’s prescription medication requirements can change.

Therefore, I recommend comparing all available plans only on the basis of the estimated out of pocket cost per year. If changes in formulary, premium cost or drug needs warrant, the insured can move to a new company and a new plan during the annual open enrollment.

There is a fairly painless way to compare the cost of all of the drug plans in your locality via the government website and I have easy navigation directions coming up in the next post.

What if you are so healthy that you take no prescription drugs at all? After thanking the ancestors who passed down your particular gene pool, consider whether there might be a need for insuring against high prescription costs anytime in the future.

If not, and you expect to never, ever purchase one of these drug plans, you are finished right now.

On the other hand, most people without crystal balls like to keep their options open and hedge their bets. And they generally want to avoid the lifetime late enrollment penalty.

Someone may become eligible to purchase a PDP but elect not to do that. If that person then decides to go ahead and buy one sometime in the future, a late enrollment penalty will be assessed for each month elapsed from the initial eligibility period to the actual purchase.

The lifetime penalty amounts to roughly 35 cents per month for each month elapsed. That means an extra $4.20 per month for a one-year delay, $8.40 per month for a two-year delay, $12.60 per month for a three-year delay and so on.

This is why I advise my clients to buy an inexpensive PDP (maybe $20 per month) when they are first eligible, even if they take no drugs yet.

Admittedly, not all have followed my advice, but I sleep better at night knowing that I tried.

…kind of like child rearing.