A Medicare Prescription Drug plan (PDP) is an insurance policy that covers take-home drugs prescribed by a doctor. Out-of-pocket costs usually apply.
PDPs are also known as Medicare Part D.
Private insurance companies sell these plans, following approval by Medicare. Most PDPs include coverage for commonly prescribed medications.
This article takes an in-depth look at PDPs, or Medicare Part D. It explores coverage options, costs, rules, and exclusions.
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.
Part D plans provide outpatient prescription drug coverage. They are available through private health insurance companies — as part of Medicare Advantage plans or as stand-alone policies.
Each PDP must offer a standard level of coverage set by Medicare. However, the lists of covered drugs can vary by plan.
Some Medicare plans automatically provide the option of prescription drug coverage, including:
- Medicare Cost plans
- Private Fee-for-Service, or PFFS, plans
- Special Needs Plans, or SNPs
Which drugs are covered?
Most Part D plans cover the costs of generic and brand-name prescription drugs.
There is a formulary, a list of medications, for PDPs, and each plan must cover at least two drugs in the “most commonly prescribed” category — but the insurer can choose which.
The drugs are classified by tiers, and a more expensive drug is usually in a higher tier. If a copayment applies, the overall cost may increase according to the tier of the drug.
Which drugs are excluded?
Certain prescription drugs are excluded from PDP coverage, including:
- drugs for weight loss or gain
- over-the-counter medicines
- drugs with cosmetic uses
- fertility drugs
- drugs that treat erectile dysfunction
Prescribed vitamins and minerals are also excluded from coverage, except for prenatal or fluoride preparations.
There are many PDPs, each with various benefits. A person can compare the plans available in their area with the Medicare Plan Finder.
A healthcare professional can offer guidance about specific plans and coverage and ways to save on costs.
If a prescribing doctor concludes that a plan’s formulary cannot meet a person’s health needs, it is possible to ask the insurer for an exception. In this case, the prescribing doctor needs to submit a statement to the insurer to support the request, which the insurer may deny.
When to enroll
The best time for a person to enroll in a PDP is when they first become eligible for Medicare. Any delay may result in a gap in coverage, and penalty charges may apply.
To avoid these charges, a person needs to have creditable prescription drug coverage, such as through their employer, or be receiving additional help with costs.
Late enrollment penalties
The late enrollment penalty is a dollar amount that is added to a monthly premium. The amount may vary, depending on how long the person went without a PDP or another type of Medicare-approved prescription drug coverage.
A person with a PDP is required to pay certain costs, depending on:
- the drugs involved
- the chosen plan
- whether the person visits a pharmacy in their plan’s network
- whether the necessary drugs are on the plan’s formulary
- whether the person gets support paying their PDP costs
Monthly premiums
Most plans charge a monthly premium, with costs depending on the chosen policy. In addition, the person pays the monthly premium for Medicare Part B and, if applicable, Part A.
Alternately, a person may have a Medicare Advantage plan that includes prescription drug coverage. In this case, the cost of prescription drugs is typically included in the total policy amount because Advantage plans usually combine different Medicare parts.
Out-of-pocket costs
The deductible amount can vary between PDPs and change every year. In 2021, no Medicare drug plans are allowed to charge a deductible of more than $445. Some plans have no deductibles, but their monthly premiums may be higher.
After a person pays their annual deductible, a copayment or coinsurance charge may apply. The same copayment amount applies to all prescription drugs on the same tier. A person may pay a lower copayment if they use a generic drug instead of the brand-name version.
Coverage gap costs
PDPs may have a coverage gap, which is a temporary limit on what the plan covers.
In 2021, the maximum a person and their drug plan can spend is $4,130 before reaching the coverage gap. This maximum amount can change from year to year, however.
Medicare recipients who get additional support in paying their PDP costs do not enter coverage gaps.
Extra Help is a Medicare program that helps people with limited resources pay their Part D prescription drug costs, including premiums, deductibles, and coinsurance.
Once a person becomes eligible for Extra Help, they should pay no more than $3.70 for approved generic drugs and $9.20 for approved brand-name drugs. These prices are correct as of 2021 and may change annually.
PDPs provide coverage for prescribed medication. Private insurance companies can offer them to people with Medicare parts A and B. When choosing a PDP, check the plan’s formulary to make sure that it includes the necessary prescription drugs.
Costs associated with PDPs include monthly premiums, deductibles, copayments, and coinsurance charges. People with limited resources may be eligible for additional financial support from a Medicare program called Extra Help.