Medicare Part D Drug Coverage: Benefits Overview and Plan Options

Medicare Part D covers outpatient prescription drugs for people with Medicare. Prescription drug coverage is included in most Medicare Advantage plans, but people with Original Medicare (Part A and/or Part B) need to sign up for a stand-alone Part D plan for coverage.

Medicare Part D plans are sold by private health insurance companies. They can differ in terms of premiums, out-of-pocket costs like copays and deductibles, drug coverage, pharmacy networks and more, so it’s important to shop around to find the best fit.

Here’s what you need to know about how to buy and use Medicare Part D prescription drug coverage.

Medicare Part D is prescription drug insurance. There are two ways to get this Medicare prescription drug coverage. How it works depends on your other Medicare coverage.

1. Medicare Part D and Original Medicare

If you have Original Medicare (Part A and/or Part B), you buy a stand-alone Medicare Part D plan from a private health insurance company to get prescription drug coverage.

You can shop for your choice of stand-alone plans, which vary in terms of cost and coverage. You’ll pay a separate premium for the Part D plan.

2. Medicare Part D and Medicare Advantage

Medicare Advantage, sometimes called Medicare Part C, is a bundled alternative to Original Medicare and is sold by private health insurance companies. Medicare Advantage plans cover all of the benefits of Part A and Part B, and most of them also include prescription drug coverage.

If you have Medicare Advantage, you generally can’t buy a separate, stand-alone Medicare Part D plan. However, there are exceptions for certain less common kinds of Medicare Advantage plans that don’t include their own prescription drug coverage.

» MORE: Medicare Part C vs. Part D: What’s the difference?

Medicare Part D plans don’t cover every drug. Plans have a list of the drugs they cover, called a formulary. The formulary also lays drugs out into tiers with different out-of-pocket costs.

• Medicare Part D plans’ formularies must meet certain minimum standards set by the federal government.

• Plans have to cover certain categories of drugs, such as drugs to treat asthma or high blood pressure.

• Within each category, they have to cover at least two distinct drugs^[0]

  Medicare Prescription Drug Benefit Manual, Chapter 6. Section 30.2.1 — Formulary Categories and Classes. Accessed May 21, 2024.

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• If you or your health care provider believe that you need a specific drug that your Medicare Part D plan doesn’t cover, you can ask for an exception^[0]

  Centers for Medicare & Medicaid Services. Exceptions. Accessed May 21, 2024.

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  . Your health care provider might need to demonstrate that the specific drug is medically necessary for your plan to cover it.

Most Medicare Part D plans have premiums and some combination of deductibles, copays and coinsurance. The specifics depend on the plan you choose and the phase of coverage.

» MORE: How much does Medicare Part D cost?

Medicare Part D premiums

Medicare Part D plans set their own premiums (approved by the government), so what you’ll pay depends on the plan you choose.

• For stand-alone Medicare Part D plans, the average premium for basic coverage is $34.50 in 2024, according to the Centers for Medicare & Medicaid Services^[0]

  Centers for Medicare & Medicaid Services. CMS Releases 2024 Projected Medicare Part D Premium and Bid Information. Accessed May 21, 2024.

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• Medicare Advantage plans bundle coverage together, so there’s no separate Part D premium for Medicare Advantage plans that include prescription drug coverage.

• People with particularly high incomes pay an income-related monthly adjustment amount, or IRMAA, on top of their monthly premiums^[0]

  Centers for Medicare & Medicaid Services. Monthly Premium for Drug Plans. Accessed May 21, 2024.

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  . In 2024, beneficiaries whose 2022 income exceeded $103,000 (individual return) or $206,000 (joint return) will pay an added amount on top of plans' premiums ranging from $12.90 to $81 per month, depending on income.

Medicare Part D copays and coinsurance

There are four phases of Medicare Part D coverage. The phase you’re in depends on how much you’ve spent out-of-pocket for covered prescription drugs over the course of the year.

Here are the four phases and their associated costs^[0]

Phase 1: Deductible

Your plan won’t start to pay for your covered drugs until you meet the annual deductible. The maximum deductible allowed by law is $545 in 2024. You enter the next phase when you hit the deductible.

Phase 2: Initial coverage

During this phase, you pay copays or coinsurance for covered drugs, depending on where the drug falls in your plan’s formulary. You enter the next phase when you and your plan have spent a combined total of $5,030 in 2024 for covered drugs.

Phase 3: The doughnut hole

During this phase, rather than the copays or coinsurance on the plan’s formulary, you pay up to 25% of the cost of covered drugs. This phase is also called the “coverage gap.” You enter the final phase when you’ve spent $8,000 in 2024 for covered drugs.

Phase 4: Catastrophic coverage

As of 2024, you pay nothing during this phase, which continues until the end of the year.

Previously, you would owe 5% of the cost of your covered prescription drugs or $4.15 for generic drugs or $10.35 for brand-name drugs in 2023, whichever was higher. This coinsurance no longer applies in 2024.

That's a change as a result of the Inflation Reduction Act, which eliminated the previous copay/coinsurance requirements.

Note: If you're part of a Medicare program called Extra Help, your drug costs will be different, and there's no coverage gap^[0]

Medicare Part D out-of-pocket cap

As of 2024, there's a new cap on out-of-pocket spending with Medicare Part D. You won’t owe any more out of pocket once you reach the catastrophic coverage phase^[0]

A bigger change is coming next year. In 2025, a $2,000 out-of-pocket spending cap for Medicare Part D takes effect.

Medicare Part D is optional. If you have Original Medicare (Part A and/or Part B), you can choose to pay for a stand-alone Part D plan. If you have a Medicare Advantage with prescription drug coverage, that coverage is included in the plan’s premium.

Initial enrollment period

You can enroll in a stand-alone prescription drug plan (Medicare Part D) or a Medicare Advantage plan that includes Part D prescription drug coverage during the initial enrollment period. This is the seven-month period starting three months before the month you turn 65, including your birthday month and ending three months after your birthday month^[0]

Note: If your birthday is the first day of any month, your seven-month initial enrollment period begins earlier, starting four months before you turn 65 and ending two months after your birthday month. So a July 1 birthday has an initial enrollment period of March to September.

» MORE: Medicare eligibility calculator

Special enrollment period (if you qualify)

A special enrollment period is your chance to sign up for Medicare coverage even though it’s not your initial enrollment period or an open enrollment period. If you lose current coverage, such as creditable prescription drug coverage from an employer, you might qualify for a special enrollment period^[0]

Special enrollment periods generally last for two months. For example, a two-month special enrollment period would start the month after your employment ends or the month after losing your qualifying employer insurance, whichever happens first.

If you sign up during the special enrollment period, you can avoid owing late enrollment penalties.

Medicare Part D late enrollment penalty

If you don’t enroll during the initial enrollment period and you don’t have “creditable prescription drug coverage,” you'll likely pay a late enrollment penalty. Creditable prescription drug coverage is coverage from your or a spouse’s employer or union that pays on average at least the same amount as Medicare standard drug coverage^[0]

» MORE: Medicare late enrollment penalty calculators

Open enrollment period

You can join or switch to a different Medicare Part D or Medicare Advantage plan during the fall open enrollment period for Medicare and Medicare Advantage, which runs from Oct. 15 through Dec. 7 every year.

If you have a Medicare Advantage plan, there’s another opportunity during Medicare Advantage open enrollment, which runs from Jan. 1 to March 31 each year. During Medicare Advantage open enrollment, you can switch plans or switch to Original Medicare with the option to buy a stand-alone Medicare Part D plan.

If you take costly medications, Medicare Part D coverage is almost certainly worth it. Even if not, enrolling in a low-cost plan can help you avoid late enrollment penalties, and nearly every state has at least one plan with premiums below $1 per month in 2024^[0]

If you don’t use Medicare Part D coverage much at first, it’s good to be covered in case your health changes or your prescription drugs become more expensive later on.