Part D, what you must know

The long-awaited Medicare prescription drug coverage begins January 1st, 2006 and, if you're a participant in Medicare, you can sign up as early as November 15th. What you must know is that doing nothing is not an option. You need to look at the alternatives and make a choice.

Medicare beneficiaries will be able to choose from at least two of the stand alone drug plans that contract with Medicare to provide the new benefit. If you do not sign up by May 15th, 2006 however, you will pay higher premiums for the rest of your life--to the tune of 1% for each month late that you sign up. Exceptions are participants who are covered by an employer-sponsored plan that is at least as rich as the new Medicare plan. They can stay with that plan as long as they like and will not be penalized for joining Part D later. Weigh your options.

Here's how the drug plan works: The participant pays the first $250 in prescription costs as the deductible. Of the next $2,000 spent for prescription drugs, Medicare picks up 75%, the participant, 25%. So, of the first $2,250 spent, the participant pays $1,136, $386 in premiums ($32.20 per month), the $250 deductible and $500 as the 25% co-pay.

Now is where the plan gets a little strange. It covers nothing from $2,250 to $5,100, the "catastrophic level". Zip, zero, nada. This has come to be known as the doughnut hole. Then, above $5,100, Medicare pays 95%.

The rules are a bit convoluted, just like anything in government. But the plan offers tremendous protection against having to pay huge sums for prescription drugs in the event of catastrophic illnesses.