0 How do I know I have the cheapest Part D plan?

I am on Medicare and have a prescription drug plan that cost about $400 this past year. How do I know if I am paying too much for it or should switch to another plan?

You have plenty of company in confusion, it turns out. Only 5 percent of Medicare beneficiaries buying stand-alone Part D drug plans choose the plan that's cheapest for them, according to a study published in the October 2012 issue of Health Affairs. The average beneficiary paid $368 more in premiums and drug costs than they would have if they'd chosen the cheapest plan for their specific assortment of prescriptions, and more than a fifth overspent by at least $500 a year.

Researchers Chao Zhou and Yuting Zhang from the University of Pittsburgh found that the biggest mistake people made was picking a plan that covered generic drugs in the coverage gap known as the doughnut hole. They paid hundreds of dollars more for this feature than they got back in drug benefits.

So how can you avoid making that mistake during this year's open enrollment period, which starts Oct. 15 and runs through Dec. 7? Medicare has made this job surprisingly easy if you know where to start.

Let's walk through the process.

1. Go to Medicare.gov and click on "Find health & drug plans." It's in a yellow box near the top of the page. You can't miss it.

2. Enter your zip code, and then answer the other questions as they appear. It's critical that you choose one or two pharmacies and specify the drugs you take. Otherwise the plan finder won't return accurate information for your personal situation.

3. On the results page, click on "Prescription drug plans (with original Medicare)" to see a complete list of stand-alone Part D plans available in your area.

4. The list that pops up will automatically show the lowest-cost plan first. Medicare computes the cost including your monthly premiums as well as all your out-of-pocket costs for the list of drugs you selected.

I did this exercise using a typical list of drugs that a retiree might take: 10 mg of atorvastatin (generic Lipitor), 75 mg of clopidogrel (generic Plavix), and 40 mg of Nexium, a brand-name drug.

I entered your zip code (from a Midwestern city) into the plan finder, chose two of the pharmacies listed in your area (a Target and a Walgreen's) and plugged in those three drugs.

Thirty plans came up, of which three haven't yet provided 2013 drug pricing to Medicare. The price difference among the remaining 27 was eye-opening. The cheapest plan would cost $744 a year and the most expensive, $3,915.

And the total cost didn't entirely track premiums. While the cheapest plan did have a fairly low premium of $27 a month, a plan with an even lower premium of $18.50 would cost a total of $3,121 a year because none of the three drugs I was shopping for are on its preferred formulary. That's something you can easily see in the plan finder by clicking through on the blue words "yes" or "no" under the column entitled "Drug Coverage, Drug Restrictions, and Other Programs."

Of course, if you end up needing to start a new prescription in the coming year, the equation could change if the new drug isn't on your plan's preferred formulary. Also, plans can and do change their formularies from year to year. That's why smart Part D shoppers run through this exercise every year.

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