You won’t find outpatient drug coverage in Medicare Part A or Part B, even though medicines are a large percentage of many seniors’ health care budgets. That’s one reason why, starting in 2006, Medicare began offering Part D, an optional program that helps cover the cost of prescription drugs.
Prescription drug plans are offered by private insurers approved by Medicare. Most recipients pay a monthly premium and various cost-sharing responsibilities, such as copays and deductibles. Signing up on time is important because you may pay a late penalty if you don’t sign up when you are first eligible, usually around your 65th birthday.
You can sign up for Medicare Part D in two ways:
Medicare Part D stand-alone plans
Medicare drug plans cover generic and brand-name drugs. All plans must cover the same drug categories, such as asthma or diabetes medicines, but providers can choose which specific drugs are covered in each drug category.
Each Medicare Part D plan has a formulary — a list of medicines it covers. This list will likely include both brand-name and generic drugs and at least two drugs in the most commonly prescribed categories. Formularies change from year to year and even within the year.
Some Medicare D plans have restrictions, including authorization before a drug is prescribed and step therapy, which requires generic and lower-cost brand-name drugs before the most expensive drug is used.
Premiums for stand-alone Medicare Part D vary, and deductibles for plan year 2021 can be no more than $445.
Medicare Advantage Plans with Part D coverage
Medicare Advantage Plans are also sold by private insurers and provide the same coverage found in Original Medicare Part A and Part B. Many provide extra benefits such as some dental and vision coverage. A large percentage of Medicare Advantage Plans include Part D prescription drug coverage.
As with stand-alone plans, each Medicare Advantage Plan that includes Part D coverage has its own formulary and also may have restrictions.
Many Medicare Advantage Plans offer drug coverage for $0 premiums but may still charge an overall premium for the plan.
If you choose a Medicare Advantage Plan that doesn't include Part D coverage, you may buy a stand-alone Part D plan.
Costs for either type of Part D coverage
You may pay premiums for Part D coverage, and you’ll be responsible for cost sharing, including deductibles, copays or coinsurance.
There are also some other cost-sharing rules that may affect you.
In 2021, when you and your insurer have paid $4,130 in covered prescription drug costs, you'll hit what's known as the Medicare "donut hole." During this phase of coverage, you must pay 25% of all prescriptions until you've spent $6,550 in out-of-pocket costs, at which point you enter "catastrophic coverage."
In the catastrophic coverage phase, you’ll pay 5% of the cost of your drugs, or $3.70 for generics and $9.20 for brand-name drugs, whichever is more.