Medicare Part D is prescription drug coverage available to people enrolled in original Medicare. A Part D plan needs to cover at least two drugs from each of the most commonly prescribed categories of medications.
Medicare is a federal health insurance program for people aged 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.
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.
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, 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 that they need.
Part D plans can cover brand-name and generic drugs. Generics 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. These have the lowest copayments.
- Tier 2: Preferred brand-name drugs. These may have medium copayments.
- Tier 3: Non-preferred brand-name drugs. These may have higher copayments.
- A specialty tier: This might include very high-cost drugs.
Part D charges include:
- monthly premiums
- the annual deductible
- coinsurance costs
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 Part D?
Anyone enrolled in original Medicare is eligible for Part D coverage.
If a person instead has a Medicare Advantage plan, they are not eligible for Part D because most Advantage plans cover prescription medications. In 2021, 89% of these plans provide this coverage.
When can a person enroll in Part D?
A person can enroll in a 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, 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 provider
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 should enroll in a plan as soon as possible, unless they have other “creditable” prescription drug coverage.
This is a Medicare program that helps people with limited means pay the costs of their Part D plans. It is worth approximately $5,000 per year.
To be eligible, a person needs to 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 $14,790 for an individual or $29,520 for a married couple. When calculating the value of these resources, the program excludes:
- the person’s home
- their car
- personal possessions
- an intended burial plot
A person can apply for Extra Help:
- on the SSA’s webpage
- by calling the Social Security Administration at 800-772-1213
- by calling 800-325-0778, for deaf people
A Medicare Part D plan makes prescription drug costs more affordable. There are still out-of-pocket expenses, but Medicare sets limits on these.
A person can enroll during their IEP, when they first become eligible for Medicare. If they miss this, they can sign up during the open enrollment period every year, though they may have to pay a late enrollment fee going forward.