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Big changes are coming to Medicare Part D prescription drug coverage following the passage of the Inflation Reduction Act of 2022, which gives Medicare the power to negotiate for lower prescription drug prices. The act also includes caps on out-of-pocket spending, limits on increases in Medicare Part D premiums and drug prices, and more.
Certain changes will take effect in 2023, while others start as late as 2026.
Medicare Part D covers prescription drugs and is offered by private insurers approved by the federal government. Most recipients pay a monthly premium that varies by plan based onf your state, county and ZIP code, plus copays and other potential costs. Introduced in 2006, Part D is Medicare’s most recent addition. While Part D is technically optional, there are steep and permanent penalties if you don't sign up on time.
The program is designed primarily for those enrolled in Original Medicare (Parts A and B). You can sign up during your initial enrollment period — a seven-month window with your 65th birthday month in the middle. You can also add Part D during the annual Medicare open enrollment period in the fall, but you may incur a late penalty.
If you choose Medicare Advantage (instead of Original Medicare), most of those plans include prescription drug coverage. If yours doesn’t, it's unlikely you'll be able to add a separate, stand-alone Part D plan.
Different Medicare Part D plans cover different drugs with different cost-sharing structures. “It’s amazing how many people don’t realize that the medicines they need may not be included in their Medicare drug coverage,” says Judith Stein, executive director of the Center for Medicare Advocacy. “You need to check carefully.”
What Medicare Part D plans cover
Medicare drug plans cover both generic and brand-name drugs. All plans must meet a standard level of coverage set by Medicare. This means they must all cover the same categories of drugs, such as asthma or high blood pressure medicines, but plans can choose which specific drugs are covered in each drug category.
Each Medicare Part D plan lists the drugs it covers in what’s called a formulary. This list will likely include both brand-name and generic drugs and includes at least two drugs in the most commonly prescribed categories. A formulary may not include your specific medication but may include a similar option. Formularies change from year to year and even within the year, so it’s important to check regularly that the medicines you need are included in your Part D coverage. If they aren't, check with your physician to see if an alternative drug might work for you.
You may also want to check the insurers you are considering for any restrictions they put on drug coverage. This may include prior authorization before a drug is prescribed, limits on the quantity of certain drugs and step therapy in which generic and lower cost brand-name drugs are required before the most expensive drug is used.
It’s worth noting that Medicare Part D specifically covers self-administered prescription drugs. Prescription drugs administered by a doctor during a covered hospital stay, or in a doctor’s office, are typically covered by Medicare Part A or Part B. Medicare also doesn't cover over-the-counter drugs, even if they were once available only by prescription.
If you or your prescriber believes none of the drugs on your plan’s formulary will work for your condition, you can ask for an exception. This option is also available to you if your plan changes and discontinues coverage of your drug. Or you may look into switching plans each fall during Medicare's open enrollment period from Oct. 15 to Dec. 7.
Medicare Part D cost
In addition to premiums, you’ll be responsible for cost-sharing with your Medicare Part D coverage, which can be in the form of deductibles, copays or coinsurance. Depending on how much you spend on prescription medicine, there may also be some cost-sharing rules that may affect you. Here’s a rundown of Part D costs:
The monthly premium for Medicare Part D plans varies. The average basic monthly Part D premium for standard coverage is $33 per month in 2022 (projected $31.50 in 2023), which will give you a comparison point while you shop. If you get drug coverage through a Medicare Advantage plan, there generally is no separate premium for your drug coverage — it's rolled into your Advantage plan premium.
As with Medicare Part B, high earners will pay an Income Related Monthly Adjustment Amount (Part D IRMAA) in addition to premiums.
In 2022, beneficiaries whose 2020 income exceeded $91,000 (individual return) or $182,000 (joint return) will pay an added amount on top of plans' premiums ranging from $12.40 to $77.90 per month, depending on income. In 2023, the thresholds are $97,000 and $194,000 based on 2021 income, and the amounts added to premiums range from $12.20 to $76.40 per month..
You can find a full list of additional premium costs on Medicare.gov.
Part D deductibles vary among plans. Some plans have no deductible while the maximum amount allowed is $480 in 2022 ($505 in 2023).
Copayments or coinsurance
Medicare Part D and Medicare Advantage plans with prescription drug coverage almost always charge a copayment or coinsurance for each of the medicines you purchase. The amount varies by plan.
Often Part D coverage uses a tiered cost-sharing structure. This means you'll pay a different price for different categories of drugs. In general, you’ll pay more in copays or coinsurance for brand-name drugs and less for generics.
Coverage gap (also called the "donut hole")
You may face more cost sharing when you hit the Medicare coverage gap. Once you and your insurer have paid $4,430 in 2022 ($4,660 in 2023) in prescription drug costs, you'll be responsible for 25% of all of your medicine costs. This is also called the “donut hole.”
The potentially higher cost-sharing you pay in the donut hole continues until you enter what’s known as Medicare Part D catastrophic coverage.
When you spend an annual total of $7,050 in 2022 ($7,400 in 2023) for out-of-pocket costs for your pharmaceutical drugs, not including your insurer’s portion, you will be eligible for catastrophic coverage. When you are in the catastrophic coverage phase, you'll pay 5% of the cost of your drugs, or $3.95 for generic drugs or $9.85 for brand-name drugs in 2022 ($4.15 for generic drugs or $10.35 for brand-name drugs in 2023), whichever is greater. You pay this catastrophic rate for the remainder of the plan year.
Note: Once the plan year ends, there's a cost “reset” on Jan. 1 that sets your costs back to square one. You’ll pay any applicable deductible, and you’ll need to reach the new out-of-pocket threshold before catastrophic coverage is available again.
Late enrollment penalty
If you delay joining when you’re first eligible and you don’t already have creditable prescription drug coverage, you’ll pay 1% of the standard Medicare Part D national base — $33.37 per month in 2022 ($32.74 in 2023) — times the number of full months you didn’t have prescription drug coverage, and that number is added to your monthly premium. So someone who went 10 months without coverage would pay approximately $3 more.
A 5% copay may not sound like much, and in many cases it is reasonable. But you’ll pay this for the cost of your medicines for life. So for someone with a serious illness requiring costly drugs such as non-injectable cancer drugs or treatments for hepatitis C, it can be a burden. Says Juliette Cubanski, deputy director, program on Medicare Policy at the Kaiser Family Foundation: “The very expensive drugs that didn’t exist back when Medicare Part D was introduced get unaffordable very quickly.”
When to enroll in Medicare Part D
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. So if you turn 65 in July, you’ll have from April 1 to Oct. 31 to enroll.
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.
If you don’t enroll during the initial enrollment period and you don’t have “creditable prescription drug coverage,” you'll likely pay a premium 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.
Keep in mind the national base beneficiary premium often increases each year. When that happens your penalty amount is recalculated and increased using the new base premium.
Special enrollment period (if you qualify)
This is the two-month period starting at the month after your employment ends or the month after losing your qualifying employer insurance, whichever happens first. You can generally qualify for this special enrollment period if you or your spouse have “creditable prescription drug coverage” when you turn 65.
Open enrollment period
You can 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 Original Medicare, you can also join a Medicare Part D prescription drug plan during this period, but you may be subject to the premium penalty.
How Medicare Part D works with other insurance
If you want to keep your prescription drug coverage from an employer or union, it must be what’s called “creditable prescription drug coverage” to avoid the Medicare Part D premium penalty in the future. Your plan is required to notify you annually as to whether or not your coverage is creditable. If you don’t receive word, contact the plan or your employee benefits department directly to find out.
Be aware that if you sign up for Medicare Part D and your spouse or dependents receive prescription drug coverage from your employer or union prescription drug plan, they may lose their coverage.
The following types of government-sponsored insurance are considered creditable coverage. If you have coverage from one of these sources, it may make sense to continue with it.
Federal Employees Health Benefits.
Tricare (military benefits).
Civilian Health and Medical Program of the Department of Veterans Affairs.
Indian Health Services.
How to compare Medicare Part D plans
This interactive tool on Medicare.gov can help find a Medicare Part D plan that covers your prescriptions and help you compare costs among Medicare Part D and Medicare Advantage plans available to you.
Some things to keep in mind when comparing plans:
Check the formulary: You’ll want to make sure the medicines you currently take and, importantly, any you think you might need in the future, are covered under each of the plans you are considering. Talk to your health care providers before you sign up about what brand-name and generic medicines to look for and any alternatives that may also work in case you can’t find the medicines you currently take on the plans available in your area.
Look for plan changes: Formularies change frequently. Your insurer should send you a Notice of Plan Change when the formulary changes. Read this document carefully.
Check the pharmacy network: Most Medicare Part D plans negotiate with a network of pharmacies for the lowest cost. Check to see if your pharmacy or an equally convenient one is in the plan’s network. Also, compare prices for using mail order.
If your plan does change, and the change affects the prescription drugs you need, you can switch plans during Medicare's open enrollment period, Oct. 15 to Dec. 7. Changes go into effect on the following Jan. 1.