Medicare Part D is prescription drug coverage for people enrolled in Original Medicare. Part D plans must cover at least two drugs from each of the most commonly prescribed medication categories.
Medicare is a federal health insurance program for people ages 65 and over and some younger people with specific medical conditions.
Original Medicare comprises Part A, which covers inpatient hospital care, and Part B, which covers outpatient medical treatment. Part C, or Medicare Advantage, combines parts A and B in one plan and provides additional benefits.
Private insurance companies administer parts C and D, and Medicare approves these plans.
Glossary of Medicare terms
We may use a few terms in this article that can be helpful to understand when selecting the best insurance plan:
- Out-of-pocket costs: An out-of-pocket cost is the amount a person must pay for medical care when Medicare does not pay the total cost or offer coverage. These costs can include deductibles, coinsurance, copayments, and premiums.
- Deductible: This is an annual amount a person must spend out of pocket within a certain period before an insurer starts to fund their treatments.
- Coinsurance: This is the percentage of treatment costs that a person must self-fund. For Medicare Part B, this is 20%.
- Copayment: This is a fixed dollar amount a person with insurance pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 introduced Part D, a voluntary plan that covers the costs of prescription drugs that a person takes at home. The first Part D plan became available on January 1, 2006.
Private insurance companies offer Part D plans, which Medicare approves. The monthly premiums can vary, and Medicare sets the maximum out-of-pocket costs that the insurers can charge.
Each Part D plan has a formulary, which is a list of medications that it covers. A formulary needs to include at least two drugs in each of the most commonly prescribed categories of medications. This is to help ensure that people with common medical conditions can access the drugs they need.
Part D plans can cover brand-name and generic drugs. Generic medications are
Many Part D plans have different tiers. Plan providers arrange these tiers in different ways, but an example might be:
- Tier 1: generic drugs, which may have the lowest copayments
- Tier 2: preferred brand-name drugs, which may have medium copayments
- Tier 3: non-preferred brand-name drugs, which may have higher copayments
- A specialty tier: very high cost drugs, which may have the highest copayments
Part D charges include:
- monthly premiums
- the annual deductible
- copayments
- coinsurance costs
The charges vary from plan to plan, but the basic premium averages $55.50 in 2024. Also, a plan cannot charge more than $545 for the 2024 annual deductible.
Other factors may affect the overall cost of a Part D plan, such as:
- whether the formulary includes the necessary medications
- the tiers in which these drugs are categorized
- the pharmacy that the person uses
Medicare has strict eligibility and enrollment rules for its plans.
Who is eligible for Medicare Part D?
Anyone enrolled in Original Medicare is eligible for Part D coverage.
If a person has a Medicare Advantage (MA) plan instead, they are not eligible for a stand-alone Part D plan because most MA plans offer Part D coverage.
In 2024, the Kaiser Family Foundation reported that 97% of individuals enrolled in a Medicare Advantage plan have prescription coverage included.
A person can enroll in a Medicare Part D plan during their Medicare initial enrollment period (IEP), a 7-month window that begins 3 months before the person turns 65, continues through their birth month, and ends 3 months later.
If a person misses their IEP, they can sign up for a plan during the open enrollment period (OEP), which lasts from October 15 to December 7 each year.
Medicare has an online search tool that shows the Part D plans available in a person’s area. After choosing a plan, a person can enroll by:
- filling out an application on the plan’s website
- calling the plan provider and giving them the necessary information
- completing a paper application and mailing it to the plan provider
Medicare Part D late enrollment penalty
If a person goes without prescription drug coverage for at least 63 consecutive days after the end of their IEP, they may have to pay a late enrollment penalty, which is added to their monthly premium.
The penalty is generally permanent, which means that the person has to pay it as long as they have the Part D plan.
To avoid the penalty, a person must enroll in a plan as soon as possible, unless they have other “creditable” prescription drug coverage.
Learn more about creditable coverage.
This is a Medicare program that helps people with limited means pay the costs of their Part D plans. It is worth approximately $5,900 per year.
To be eligible, a person must have enrolled in Medicare parts A, B, or both. Also, they need to reside in one of the 50 states or the District of Columbia.
Another eligibility requirement concerns resources. The value of savings, real estate holdings, and investments must not exceed $17,220 for an individual or $34,360 for a married couple. When calculating the value of these resources, certain items are excluded, including:
- the person’s home
- their car
- personal possessions
- an intended burial plot
A person can apply for Extra Help:
- on the SSA webpage
- by calling the Social Security Administration at 800-772-1213
- by calling 800-325-0778, a dedicated call center for deaf people
A Medicare Part D plan makes prescription drug costs more affordable. Although out-of-pocket expenses are still present, Medicare sets limits on them.
When a person first becomes eligible for Medicare, they can enroll for Part D during their IEP.
If they miss the IEP, they can sign up during the OEP every year, though they may have to pay a late enrollment fee going forward.