Private insurance companies offer Medicare Part D plans, which vary in coverage and costs. Choosing the best optional plan for a person’s individual needs and budget involves comparing coverage, costs, and options.

Medicare Part D plans offer prescription drug coverage. According to the Kaiser Family Foundation (KFF), Medicare Part D plans covered prescription medication costs for 45 million citizens of the United States in 2019.

This article discusses Medicare Part D plans, coverage, and costs. It also looks at enrollment periods, penalties, and options for people on a limited income.

We may use a few terms in this piece that can be helpful to understand when selecting the best insurance plan:

  • Deductible: This is an annual amount that a person must spend out of pocket within a certain time period before an insurer starts to fund their treatments.
  • Coinsurance: This is a percentage of a treatment cost that a person will need to self-fund. For Medicare Part B, this comes to 20%.
  • Copayment: This is a fixed dollar amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.

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Medicare Part D is an optional prescription drug plan (PDP) that helps people pay for both brand name and generic drugs that their doctor prescribes. According to KFF, more than 940 PDPs will be available in 2020, spread across 34 regions, including 11 in the territories.

Only a person enrolled in original Medicare can sign up for Part D. Most Part D plans list covered prescription drugs. The plan classifies drugs into tiers or levels that relate to cost. To pay for these medications through Part D, a person will generally pay coinsurance, copays, and a deductible.

Private insurance companies, rather than federal or state offices, offer Part D plans. However, Medicare requires that all Part D plans provide beneficiaries with a standard level of coverage. Plans may offer additional benefits.

In addition, Part D plans vary in coverage and cost-sharing options, so a person may pay different amounts for medications depending on their plan.

There are several factors a person may want to consider when choosing a Medicare Part D plan to make sure it meets their healthcare and budget needs.

Where can a person get their medication?

Medicare requires that Part D plans cover all prescription drugs in these categories:

  • anticancer medications
  • antidepressant medications
  • anticonvulsive medications
  • antipsychotic medications
  • HIV and AIDS medications
  • immunosuppressant medications

Each Part D plan must cover a minimum of two medications in each category. However, the plans can develop their own list of drugs they cover, called formularies. Plans often cover vaccines with no copay.

If doctors prescribe medications that the formulary does not include, they can request an exception. They must send a formal letter to the Part D provider explaining why their patient needs the specific medication. Medicare decides on an individual basis if they will allow the exception.

Plans may use specific pharmacies or network of pharmacies. They may offer options for both retail and mail-order pharmacies that cover the plan holder.

A person can use the online plan finding tool to compare plans, including drug coverage.

Medicare Part D has different associated costs, including a monthly premium, deductibles, and copays. The exact cost of each of these depends on the individual plan.

Premium

A basic premium applies to Medicare Part D, although it varies by plan, and a person pays it in addition to the Medicare Part B premium.

A person may also pay an extra amount, called a Part D income-related monthly adjustment amount (Part D IRMAA), depending on their income level.

A person can pay the premiums by automatic bank deductions or by completing and mailing a paper bill. In addition, a person can instruct the plan provider to take the monthly premium directly from their monthly Social Security payment.

Deductible

Most, but not all, Part D plans have a deductible that a person pays out-of-pocket. In 2020, the maximum deductible is $435.

What are the copays and coinsurance?

Some pharmacies offer a flat rate for drugs in lower tiers. Coinsurance payments count toward the out-of-pocket limit.

Coverage gap

There is a gap in coverage, often referred to as a donut hole, for prescription drugs in Medicare Part D.

After Medicare and the plan holder spend a specified amount on drug costs, they enter a temporary gap in cover. In 2020, the amount is $4,020, which may increase to $4,130.00 in 2021.

Since 2011, the government has worked to close the donut hole. When a person reaches the coverage gap, they pay a maximum of 25% of the medication cost plus the dispensing fee.

Catastrophic coverage

After a person spends $6,350 while in the coverage gap, they get catastrophic coverage, which means they pay only a small coinsurance or copay for further medications.

According to the KFF, in 2017, about 5 million Medicare Part D enrollees reached catastrophic coverage.

5-star quality ratings

The CMS uses a five-star quality rating system for Medicare Advantage and Part D plans. A person can use the online Medicare Plan Finder at www.medicare.gov to check for five-star ratings.

Extra Help

The federal assistance program Extra Help assists those with a limited income to pay for some of the Part D plan’s costs.

According to the Social Security Administration, the criteria for Extra Help is a monthly income below $1,615 or $2,175 for a couple, and assets worth less than $14,610 or $29,160 for a couple.

A person can use the online plan finding tool to compare plans, including drug coverage.

A person can enroll in Medicare, including Part D plans, during several different periods:

  • The initial 7-month enrollment periodstarts from 3 months before someone’s 65th birthday month, includes the birthday month, and the following three months. Once people enroll in original Medicare parts A and B, they have 63 days to enroll in an add-on Part D plan or a bundled Medicare Advantage plan. If someone does not register at this time, they must wait for specific enrollment periods.
  • A person can enroll in, swap, or drop Part D plans during the open enrollment period. The period is from October 15 to December 7, with coverage starting on January 1 of the following year.
  • From January 1 to March 31, during the Medicare Advantage open enrollment period, a person can drop an Advantage plan and enroll in Original Medicare with a Part D plan.
  • From December 8 to November 30 of the following year, a one-time special enrollment period offers a person the chance to choose a 5-star rating plan.

How to enroll

There are several enrollment options, including:

  • using the online Medicare plan finder tool
  • calling Medicare at 800-MEDICARE (800-633-4227)
  • contacting the insurance provider online or by telephone

Late enrollment penalties

A person may get a late enrollment penalty if they did not enroll in Part D during the initial 63 days following their enrollment period and had no other creditable prescription drug coverage.

Medicare calculates the late enrollment by multiplying 1% of the base Part D premium of $32.74 by the number of full, uncovered months. Medicare rounds the monthly premium to the nearest $.10 and adds this amount to the Part D premium.

For example, if someone enrolled 7 months late, the penalty would be 7% of $32.74, which is $2.29. Medicare rounds this up to $2.30 and adds it to future monthly premiums.

The penalty applies to all further premiums for life, meaning, people pay less when they enroll as soon as they qualify.

A person needs to consider their healthcare needs and budget when choosing a Medicare Part D plan, especially as they may have to choose from several different plans that vary in cost and coverage.

Choosing the best optional plan involves a comparison of coverage, costs, and options.

The information on this website may assist you in making personal decisions about insurance, but it is not intended to provide advice regarding the purchase or use of any insurance or insurance products. Healthline Media does not transact the business of insurance in any manner and is not licensed as an insurance company or producer in any U.S. jurisdiction. Healthline Media does not recommend or endorse any third parties that may transact the business of insurance.