Medicare Part D Drug Coverage: Benefits Overview and Plan Options

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 health 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.

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.

» MORE: Best Medicare Part D prescription drug plans

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 Jul 21, 2023.

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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 Jul 21, 2023.

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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 $31.50 per month in 2023, according to the Centers for Medicare & Medicaid Services^[0]

  Centers for Medicare & Medicaid Services. CMS Releases 2023 Projected Medicare Basic Part D Average Premium. Accessed Jul 21, 2023.

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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 Jul 21, 2023.

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  . 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^[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 $505 in 2023 ($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 $4,660 in 2023 ($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 $7,400 in 2023 ($8,000 in 2024) 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^[0]

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^[0]

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

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.