People who are at least 65 years old and who qualify for Medicare need to have a form of prescription drug coverage.
Medicare Part D provides prescription drug plans through traditional Medicare. However, private companies, rather than federal or state offices, administer Part D.
In this article, we take an in-depth look at Medicare Part D, describing its costs and coverage. We also explain which prescribed drugs Part D covers.
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.
“Medicare Part D” refers to prescription drug plans that offer at least the standard level of coverage that Medicare requires. Private insurance companies sell and administer these plans.
A person with traditional Medicare who does not have a Medicare Advantage plan can sign up for Part D.
Medicare Advantage is an alternative to original Medicare. Advantage involves paying a single premium for Medicare coverage, including prescription drug coverage and some additional services.
Most Medicare Part D plans use a tiered classification of prescription drugs. The lowest tier may include generic medications, which usually cost the least. Brand-name, specialty medications are usually in the highest tier, as they are often the most expensive.
To pay for medications through Medicare Part D, a person with a Part D plan usually has to meet a deductible.
Though Part D plans are privately administered, Medicare requires that none of these plans have a deductible greater than $445 in 2021.
However, it is possible to enroll in a Medicare Part D plan with no deductible, depending on what private companies are offering in a person’s area.
Once a person meets their deductible, they will pay either a copayment or coinsurance cost for medications in the future.
While Medicare Parts A and B help provide hospital and medical service coverage, they do not cover most prescription medications that a person takes at home.
Prescription medications can be expensive, and Medicare requires a person to have prescription drug coverage — through a Part D plan, for example — in order to protect people from having to pay excessive prescription costs.
A person can learn about available Medicare Part D plans and enroll in several ways, including:
- online at medicare.gov
- by phone at 800-MEDICARE (800-633-4227)
- in person at a local insurance office
These resources can help a person compare plans and find one that best suits their needs.
In 2021, the average monthly premium for Medicare Part D is $33.06. However, the cost of a plan can vary, depending on the specific plan and local availability.
For example, some plans may cost as little as $12.18 or as much as $191.40.
Also, the insurer may increase the premium according to the person’s income. The maximum premium-based income surcharge for 2021 ranges from $12.32 to $77.14.
Insurance providers define a high income as earning at least $88,000 per year as an individual or $176,000 per year as a couple. Any surcharge will depend on how far earning exceeds the threshold.
Also, Medicare may charge a penalty if a person does not have prescription drug coverage when they sign up for Medicare, then tries to enroll in Part D later. Medicare will add the penalty to the monthly premium.
By applying this penalty, Medicare officials hope to encourage consistent prescription drug coverage for everyone who enrolls.
Medicare requires that plans cover at least two drugs in most health categories. For example, one category may include medications for blood pressure, while another includes drugs for diabetes.
These plans also cover almost every drug in some medication categories, including:
- cancer medications
- drugs to manage HIV
Each Medicare Part D plan has a list of covered medications. This list is called a “formulary.” A person must review a plan’s formulary before enrolling to ensure it covers any ongoing medications.
A person can also apply for Extra Help, which provides additional coverage for people with low incomes. In addition, Medicare can put in place exemptions to help reduce the costs of specific medications.
Medicare has several enrollment periods throughout the year. During these, a person can add or switch their coverage.
A person can sign up for Medicare Part D when they are initially eligible for Medicare. Known as the “initial enrollment period,” this includes the 3 months before a person’s 65th birthday, the month of their birthday, and the three months afterward.
For people with Medicare, Part D open enrollment is October 15 through December 7. During this period, a person can enroll in a Part D plan or switch plans.
If a person switches plans during this time, their new coverage will begin on January 1 of the following year.
A person can also sign up for Medicare Part D at other key times — if they move out of their current plan’s service area or otherwise lose coverage.
A person should not go for more than 63 days in a row without creditable prescription drug coverage, or they may have to pay Medicare premium penalties.
The term “donut hole” refers to a gap in coverage.
In 2021, the donut hole occurs when a person and their plan have spent more than $4,130 on covered medications.
Once spending on the plan reaching this figure, a person will pay for brand-name drugs, but no more than 25% of the price.
Once the person has paid $6,550 in out-of-pocket medication costs in a year, they exit the donut hole.
From that point onward, a person will pay no more than $3.70 for generic medicines and no more than $9.20 for brand-name medications for the rest of the year. At the beginning of the following year, the limit may change.
Understanding the donut hole can be complicated. We have produced a guide to navigating prescription drug payments within the coverage gap. Learn more here.
Medicare Part D provides prescription drug plans through private insurance companies.
Only those with original Medicare can enroll in a Part D plan.
To receive the least expensive coverage, a person should enroll close to their 65th birthday or within 63 days of losing their previous prescription drug coverage.