Medicare Part D Drug Coverage: Benefits Overview and Plan Options
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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 took effect at the start of 2023, while others start as late as 2026.
» Read more: What the Inflation Reduction Act means for your Medicare coverage
Medicare Part D covers outpatient prescription drugs for people with Medicare. You don’t automatically get Part D with Medicare — you need to sign up for it. Part D plans are sold by private insurance companies, but they have to follow rules established by the federal government.
Part D is technically optional, but going without prescription drug coverage is risky. If you don’t sign up when you first become eligible, there are significant, permanent penalties for enrolling later.
Here’s what you need to know about how to buy and use Medicare Part D prescription drug coverage.
What is Medicare Part D?
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 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 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.
What does Medicare Part D cover?
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.
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. Your health care provider might need to demonstrate that the specific drug is medically necessary for your plan to cover it.
Medicare Part D cost
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.
Medicare Part D premiums
Medicare Part D plans set their own premiums, 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 $31.50 per month in 2023, according to the Centers for Medicare & Medicaid Services.
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.In 2023, beneficiaries whose 2021 income exceeded $97,000 (individual return) or $194,000 (joint return) will pay an added amount on top of plans' premiums ranging from $12.20 to $76.40 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:
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 $505 in 2023. 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 $4,660 in 2023 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 $7,400 in 2023 for covered drugs.
Phase 4: Catastrophic coverage
During this phase, you pay 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 is higher. This phase continues until the end of the year.
This year, 2023, is the last year for the 5% coinsurance during the catastrophic coverage phase. The Inflation Reduction Act eliminates that coinsurance starting in 2024.
Note: If you're part of a Medicare program called Extra Help, your drug costs will be different, and there's no coverage gap.
Medicare Part D out-of-pocket cap
There’s currently no cap on out-of-pocket spending with Medicare Part D, but that will change soon after the passage of the Inflation Reduction Act. Starting in 2024, you won’t owe any more out of pocket once you reach the catastrophic coverage phase.
A bigger change comes a year later. In 2025, a $2,000 out-of-pocket spending cap for Medicare Part D takes effect.
Medicare Part D enrollment
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.
» 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.
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.
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.
Find the right Medicare Part D prescription drug plan
The interactive tool on Medicare.gov can help you find a Medicare Part D plan that covers your prescriptions. It also helps you compare costs among Medicare Part D and Medicare Advantage plans available to you.
Here are 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’re considering. Talk to your health care providers about what brand-name and generic medicines to look for and any alternatives that may also work in case you can’t find your current medicines 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 that 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.