Medicare Part D

Summary: Medicare Part D helps cover the cost of prescription drugs. This additional coverage option is available to individuals enrolled in Medicare. In this article, we’ll look at Medicare Part D costs, coverage, and how to apply for a prescription drug plan. Estimated Read Time: 7 min

What is Medicare Part D?

Medicare Part D Prescription Drug plans provide prescription drug coverage for eligible Medicare enrollees throughout the U.S. These plans help cover the cost of certain brand-name and generic prescription drugs at pharmacies nationwide. Medicare Part D is optional coverage available to individuals enrolled in Original Medicare (Medicare Part A and/or Medicare Part B) and is necessary to help keep your drug costs low.

Medicare Part D is offered by private insurance companies, which must adhere to guidelines set by Medicare. For example, all Medicare Part D plans must cover a wide range of prescription drugs that people with Medicare take. They must also cover drugs in certain protected classes, such as drugs used to treat cancer or diabetes.

There are several different Medicare Part D plans and carriers, and available options vary based on where you live. Finding the right Medicare Part D plan for you will be determined by your medical needs and your budget.

What Does Medicare Part D Cover?

Since private insurance companies offer Medicare Part D, drug coverage will differ from plan to plan. To adhere to Medicare guidelines, each Part D plan must provide coverage for a wide range of prescription drugs. Plus, plans include both brand-name and generic medications across multiple categories and classes to help cater to everyone’s needs.

The list of drugs that a Medicare prescription drug plan covers and the level of coverage each drug receives is called a “formulary”. No two drug plans share the same formulary.

Medicare Part D formularies must include drugs in certain protected classes. Drugs in protected classes cover certain medical conditions such as cancer, diabetes and HIV/AIDs. The six protected classes include:

• Anticonvulsants
• Antidepressants
• Antipsychotics
• Antineoplastics
• Antiretrovirals
• Immunosuppressants

Each Medicare Part D plan formulary must include at least two drugs in these classes. Though Medicare drug plans must cover at least two drugs per category, the specific drugs covered will differ from plan to plan. For example, drug “A” and drug “B” may treat the same illness; however, one plan may only offer drug “A” and another plan may only offer drug “B”.

Prescription drugs on the formulary are typically placed into different groups called “tiers”. Drugs in each tier on a formulary have a different cost. Typically, the higher the tier, the higher the out-of-pocket cost. If your doctor thinks you should pay less for a higher-tier drug because you cannot take a lower-tier drug for the same condition, you can apply for an exception to lower your costs.

If your doctor prescribes a drug not on your current plan’s formulary, you may qualify for an exception and receive coverage for the drug. However, this is a rare circumstance and is never guaranteed. You should always check your plan’s formulary to ensure your current prescriptions are covered.

Even if your Medicare Part D formulary does not have your specific drug, it may have a similar drug available. In that case, you should consult with your doctor to see if the medication available on your formulary would work for you. Because Medicare drug plans negotiate prices down, using drugs on their formularies will generally save you money.

Medicare Part D Costs

When you enroll in a Medicare Part D plan, you will be responsible for the following costs:

• Monthly premium
• Annual deductible
• Copays
• Coinsurance

Your out-of-pocket costs will vary depending on which prescriptions you need, whether they’re on your plan’s formulary, which tier the drug is in, and which coverage phase you’re in. Your pharmacy choice can also impact how much you end up paying for your prescriptions.

Medicare Part D premiums vary from plan to plan and carrier to carrier. You can pay your premium directly to the insurance company or have it deducted from your Social Security check. If your yearly income is above a certain limit, you may be required to pay an income-related monthly adjustment amount (IRMAA) in addition to your plan premium.

Annual deductibles will also vary between Medicare prescription drug plans. The maximum Medicare Part D deductible in 2025 is $590, compared to $545 in 2024. However, some plans may not charge a deductible at all. In some cases, plans may cover drugs in certain tiers before the deductible is paid.

Aside from your plan premium and deductible, you will also be responsible for paying copays and coinsurance for your prescriptions. Medicare Part D has four coverage phases depending on how much you have paid out-of-pocket throughout the year. These coverage phases will impact how much you need to pay for your prescriptions.

If you have a limited income and need assistance paying for your prescriptions, you may qualify for Extra Help. Medicare Extra Help is a Medicare program that helps reduce your Part D costs, including deductibles and copays. You can apply for Extra Help any time before or after enrolling in a Medicare Part D plan.

Medicare Part D Coverage Phases

The costs of your prescription drugs through your Medicare Part D prescription drug plan may change throughout the year depending on the coverage phase you are in at any given time. When you enroll in a Part D plan, you move through the drug coverage phases depending on the amount you have spent on prescriptions throughout the year. There are currently four drug coverage phases.

Annual Deductible – For some, you must pay your annual deductible before coverage begins. However, not all plans have a deductible. If your plan does not include an annual deductible, your coverage will start with your first filled prescription.

Initial Coverage – You pay copays for your prescriptions, and your plan pays for the rest. You will enter the donut hole once the total drug costs (your out-of-pocket costs plus what your plan paid) reaches $5,030 for the remainder of 2024. Your deductible is included in your total costs. In 2025, the donut hole will be going away.

Coverage Gap (Donut Hole) – In 2025, once you reach the coverage gap phase, you’ll pay 25% of the costs for brand-name and generic drugs. Once your total out-of-pocket costs reach $2,000.00, you will enter the catastrophic coverage phase.

Catastrophic Coverage – Once you reach the catastrophic coverage phase of your Medicare Part D coverage, you will stay in this phase for the remainder of the year. In this phase, you will pay a small coinsurance for your prescriptions:

• $3.95 or 5% of the retail cost (whichever costs more)
• $9.85 or 5% of the retail cost (whichever costs more)

**In 2024, the 5% coinsurance in the Medicare Part D catastrophic coverage phase will be eliminated due to the Inflation Reduction Act of 2022

**In 2025, Medicare Part D out-of-pocket spending will be capped at $2,000, effectively eliminating the coverage gap (donut hole) phase.

How Do You Get Medicare Part D?

There are two ways in which most people get Medicare prescription coverage. If you have Original Medicare, you can enroll in a Part D plan without getting any other additional coverage. You will need to have Medicare Part A and/or Medicare Part B before you can enroll in a Medicare drug plan. If you’re also enrolled in a Medicare Supplement Plan, don’t worry – you can get a Medicare Part D plan in addition to having a Medigap plan.

You can also get prescription drug coverage through a Medicare Advantage plan. Many, but not all, Medicare Advantage plans offer drug coverage. In most cases, if your Medicare Advantage plan does not offer prescription drug coverage, you cannot enroll in a separate Medicare Part D plan in addition to your Advantage plan.

Signing up for a prescription drug plan as soon as you become eligible for Medicare is best to avoid a late enrollment penalty. This penalty is added to your Medicare Part D premium and is determined by the length of time you went without creditable prescription drug coverage. Creditable prescription drug coverage is coverage, like from an employer, that pays, on average, at least as much as Medicare’s standard prescription drug coverage.

Getting Medicare Part D is not mandatory. When considering your coverage options once you become eligible for Medicare, we recommend looking at your current medications and considering medications you may need in the future. For most, getting a Medicare prescription drug plan will reduce your overall out-of-pocket costs for prescription drugs.

Comparing Medicare Part D Plans

Before you apply for Medicare Part D, you’ll want to compare plans and carriers to find the right coverage for your healthcare needs. In addition to comparing premiums, deductibles, and copays, you’ll want to ensure that your prescriptions are covered under the plan’s formulary. Don’t forget to check out plan networks to see which in-network pharmacies are closest to you.

Sources

What Medicare Part D Drug Plans Cover, Medicare. Accessed July 2023.

https://www.medicare.gov/drug-coverage-part-d/what-medicare-part-d-drug-plans-cover

Costs for Medicare Drug Coverage, Medicare. Accessed July 2023.

https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage