Medicare Part D provides Medicare beneficiaries with prescription drug coverage. It is an optional prescription drug benefit offered to people who have Medicare, and is offered through private providers that have been approved by the federal government. Medicare Advantage plans, also known as Medicare Part C, are also offered by private insurers and may include prescription drug coverage.
While Original Medicare — Part A and Part B — offers assistance in paying for hospital and medical expenses, it does not provide coverage for the cost of prescription drugs outside of some very specific cases, such as the drugs administered intravenously during a surgical procedure. However, Medicare recipients can obtain drug coverage by enrolling in a Medicare Part D plan or a Medicare Advantage plan that includes prescription drug coverage.
In many cases, you need to have Part A and Part B coverage to enroll in a Part D plan. However, if you have a Medicare Advantage plan that includes prescription drug coverage, you typically do not need a separate Part D plan.
The following guide explains how Medicare prescription coverage works and the process of applying for coverage.
What Does Medicare Part D Cover?
Medicare rules require Part D plans to cover a wide range of prescription drugs that Medicare recipients may need, including those that fall into certain protected classes, such as drugs that treat HIV/AIDS or cancer. Each plan provides a list of drugs that are covered, also called a formulary. These formularies often place drugs into different tiers, with each tier having a different cost.
Medicare Part D and Medicare Advantage plans with prescription drug coverage typically have a formulary that includes at least 2 drugs in each commonly prescribed category and class, as well as a selection of both generic and brand-name prescription drugs.
The federal government sets minimum standards for what the formulary on Part D plans must include, but it’s still possible that an insurer’s Part D formulary may not cover the specific drug you use. However, in many cases, a similar drug may be available. If you or your doctor believes a substitution won’t work for your condition, your doctor may be able to ask for an exception. Plans may also change their covered drug list throughout the year, as long as it meets the guidelines set by Medicare.
How Much Does Medicare Part D Cost?
Since Medicare Part D is offered by private providers, the costs vary from one plan to the next. These costs are paid in addition to the premiums you pay for your Part B coverage. When examining your options, it’s important to understand each of the different types of costs you may incur. This may include premiums, copays, coinsurance, and deductibles.
Medicare Part D Premiums
Medicare Part D premiums are a monthly fee that is paid to the plan provider. Part D premiums can vary depending on the plan type you choose and where you live. Once you enroll, you can choose to pay your premiums directly or have them deducted from your monthly Social Security or Railroad Retirement Board (RRB) payments.
In 2022, individuals who earned $91,000 or more ($182,000 married filing jointly) in the 2020 tax year are charged an income-related monthly adjustment amount in addition to the plan premium. This amount currently ranges from an additional $12.40 to $77.90 per month. If your annual income and/or tax filing status changes, your Part D premiums may change as well.
Medicare Part D Copays and Coinsurance
Copayments and coinsurance are cost-sharing mechanisms that are built into many plans. A copayment is typically a set dollar amount, such as $10 per prescription, while coinsurance is a percentage of costs you pay after meeting your deductible. Both of these expenses are paid at the time you pick up your prescriptions.
After paying your deductible, the typical coinsurance amount is 25% of covered prescription drug costs during the initial coverage period (ICP). This means that you pay 25% of the covered cost and the insurance company pays the remaining 75%.
Medicare Part A Deductibles
A Medicare Part D deductible is the amount a beneficiary pays for prescription drugs each year before the plan pays its share. In 2022, the maximum deductible for any Medicare drug plan is $480. There are also some Medicare drug plans that have a $0 deductible.
Medicare Part D Penalty Cost for Late Enrollment
If you don’t enroll in Medicare Part D when you’re first eligible, you may have to pay a Part D late enrollment penalty. This may apply if you haven’t enrolled during your Initial Enrollment Period or if you are without Medicare drug coverage or another credible prescription drug coverage for 63 or more days.
The penalty is calculated based on the length of time you went without coverage and generally needs to be paid for as long as you have Part D coverage. It is calculated by taking 1% of the national base beneficiary premium — $33.37 in 2022 — and multiplying it by the number of full months you weren’t covered. This amount is rounded up to the nearest $0.10 and added to your monthly Medicare Part D premium.
For example, to calculate a penalty for a person who was without coverage for 6 months in 2022, multiply 0.337 by 6. In this case, the penalty is $2.10 per month for the entire time they have Part D coverage.
Medicare Part D Coverage Gap and Catastrophic Coverage
After you’ve spent a total of $4,430 on your prescription drugs, including your deductible, you leave the ICP and enter what was formerly called a coverage gap or a “donut hole.”
While this was officially closed in 2020, there are still costs you need to pay during this period. This includes a 25% coinsurance for both brand-name and generic drugs, plus a pharmacy dispensing fee, which typically ranges from $1 to $3. The drug manufacturer also provides a 70% discount on brand-name prescription medications within the formulary.
When your total out-of-pocket expenses reach $7,050, you enter the catastrophic benefits period. At this point, you pay either 5% coinsurance or a $3.95 copay for generic medications and a $9.85 copay for non-preferred or brand-name medications. This continues through the end of the year. Then, your plan resets and you will have a new deductible, and re-enter the ICP.
Are You Eligible for Medicare Part D?
Individuals who are age 65 or older and are entitled to or already enrolled in Medicare may be eligible for Part D drug coverage. In addition, eligibility extends to those who have been receiving Social Security Disability Insurance (SSDI) for more than 24 months and individuals who have been diagnosed with certain medical conditions, like ALS and end-stage renal disease.
When Can You Enroll in Medicare Part D?
Eligible individuals can only enroll in Medicare Part D during specific enrollment periods:
- Initial Enrollment Period: 3 months before you turn 65, the month of your birthday, and 3 months after.
- Open Enrollment Period: Annually from October 15 to December 7. During this time, you can switch to a different Part D or Medicare Advantage plan. Coverage begins on January 1.
- Special Enrollment Period: This allows you to sign up for Part D outside of the other enrollment periods if you meet certain criteria, such as losing your health care coverage or moving to a new address that isn’t in your plan’s service area. This period typically opens up for 2 months after the triggering event.
- 5-star Enrollment Period: If a plan in your area receives a 5-star rating from the Centers for Medicare & Medicaid Services (CMS), you can enroll in that plan during the 5-star enrollment period, which runs from December 8 through November 30. This can only be done once per year, and enrollment goes into effect the first day of the month after the plan receives your enrollment request.
Are There Reasons to Not Enroll in Medicare Part D?
If you already have drug coverage that is expected to pay at least as much as standard Part D coverage (also known as credible drug coverage), you may not need Medicare Part D insurance right away. In this case, delaying Part D coverage can save you from paying extra premiums that may not be necessary. When your credible coverage ends, a special enrollment period begins. This allows you to enroll in a Part D plan for up to 8 months from the time your former drug coverage ceases. As long as you enroll during this time, you can avoid the Part D late enrollment penalty.
As an alternative, you may choose a Medicare Advantage plan that covers prescription drugs rather than enrolling in Medicare Part D. If you later decide you would rather switch to Part D coverage, you can do so during the appropriate enrollment period.
Some people decide not to enroll in a Part D plan because they’re not currently taking prescription medications. However, this may be risky. You can only enroll in a Part D plan during specific enrollment periods. If you need expensive prescription drugs before you can get coverage, you may end up paying the expenses out of pocket. Then when you do enroll later on, the late enrollment penalty may also apply, increasing your premiums for the entire time you’re enrolled in Part D coverage.
How to Enroll in Medicare Part D
To enroll in Medicare Part D, you can begin by researching private plans available in your service area. Medicare’s Plan Finder tool allows you to compare plans and enroll online. Once you’ve found a plan you may be interested in, you can also call the plan sponsor to ask questions and enroll. If you prefer, you can also enroll by completing a paper enrollment form or calling 1-800-MEDICARE (1-800-633-4227) TTY: 1-877-486-2048 for assistance.
Note that you may need to wait until an enrollment period opens up before you can complete your enrollment. When you’re ready to enroll, you need to provide your Medicare number and the date(s) your Part A and Part B coverage started. This information is listed on your Medicare card.