Medicare Part D plans — which cover prescription drugs and are also known as Medicare drug plans — come with monthly premiums that vary by policy. The national base beneficiary premium for Part D plans is $33.06 per month for 2021, according to Centers for Medicare & Medicaid Services, which calculates this number in part by using the national average monthly bid amount submitted by private insurers.
Depending on the plan you choose, however, your upfront costs might be much higher or lower. In 2021, plan premiums ranged from $5.70 per month to $205.30 per month, according to the Kaiser Family Foundation. Additional charges apply if you enroll late, have an extended gap in drug coverage or earn a high income.
What is Medicare Part D?
Medicare Part D is Medicare’s prescription drug benefit. It helps cover the costs of outpatient prescription drugs, something that’s typically not covered by Original Medicare Parts A or B, which cover hospital and outpatient medical insurance, respectively.
While the government provides Parts A and B directly, Part D policies are issued by private insurance companies that have contracts with the federal government.
If you choose Original Medicare, purchasing an additional Part D plan adds important prescription coverage to your overall health insurance protection. Most Medicare Advantage plans already include drug coverage; if you have such a plan, you don't need a separate Part D policy.
Are Part D plans expensive?
In general, no — at least, not compared to standard premiums for Part B, which are $148.50 per month in 2021 for most Medicare recipients. However, these Part D plans aren't premium-free, like Part A generally is, and some can be quite costly.
Each plan determines its own premium and deductible. You can have these premiums deducted from your Social Security payment rather than paying your insurer directly.
In general, plans with lower premiums have higher deductibles. While the upfront premium costs might be lower, the coverage won't kick in until you hit the deductible, which could make plans with higher deductibles more expensive overall in some cases. Here are a few examples to give you a ballpark idea of what you might expect to pay for this type of coverage.
Are there additional costs for high-income earners?
If your income exceeds a certain amount, you may have to pay a surcharge on your Medicare Part D insurance. This surcharge is known as the Part D Income-Related Monthly Adjustment Amount, or Part D IRMAA, and is not part of your premium.
You won’t owe a Part D IRMAA in 2021 unless you’ve earned more than $88,000 filing an individual tax return, or $176,000 filing jointly. The surcharge amount increases incrementally as income rises, starting at $12.30 per month and reaching a cap at $77.10 monthly for those with an annual income of over $500,000 filing individually or $750,000 filing jointly. Check current rates on Medicare.gov.
High-income earners must pay the Part D IRMAA whether they choose a Medicare Part D plan or a Medicare Advantage plan that includes prescription drug coverage. The Part D IRMAA is never paid to your insurer and is usually deducted from your Social Security check.
What about the Part D late-enrollment penalty?
Medicare imposes a late enrollment penalty if you don’t purchase Part D coverage before the end of your Initial Enrollment Period — the seven-month period starting three months before the month you turn 65 — or if you’ve gone 63 consecutive days or more without prescription drug coverage. This penalty is in addition to your monthly premium cost and generally remains in effect for as long as your Medicare drug coverage continues.
Medicare determines the penalty amount by multiplying the number of full months you were eligible for but didn’t have drug coverage by 1%, then multiplying that product by the national base beneficiary premium ($33.06 for 2021). The result is rounded to the nearest 10 cents. This means the longer you wait to purchase drug coverage, the higher your penalty will be. In addition, because the national base beneficiary premium can change every year, the monthly penalty amount you owe may also increase over time.
Suppose that after your Initial Enrollment Period ended, you waited another full two years without purchasing prescription drug coverage. Your penalty would be 0.24 (1% for each of the 24 months you were uncovered) x $33.06 (national base beneficiary premium) — for a total of $7.93, rounded to $7.90. You would owe this $7.90 each month in addition to your premium cost for as long as you had Medicare drug coverage. This may not seem like much, but it adds up to almost $95 over a year and could get more expensive over time if the national base beneficiary premium rises.
To avoid the Part D late enrollment penalty:
Enroll in Medicare Part D or a Medicare Advantage plan that includes drug coverage as soon as you become eligible for Medicare.
If you’ve lost your prescription plan, enroll in Medicare drug coverage immediately.
Keep good records of your drug insurance history so you’ll be able to provide proof of continuous previous coverage.
If you think Medicare has penalized you in error, you can request a reconsideration. You’ll have 60 days from the date you receive notification about the penalty to respond, and you’ll need to send the documentation that supports your case. Usually, you’ll receive a decision within 90 days.