A Guide to Medicare Part D

What Is Medicare Part D?

Medicare Part D is prescription drug coverage that helps cover the cost of your medications. These prescription drug plans are offered by private companies, and they can be purchased as stand-alone plans or included in a Medicare Advantage plan.

Even if you do not currently take prescription drugs, considering Medicare Part D can prove to be helpful down the line. If you decide not to get Medicare Part D when you’re first eligible and decide to sign up at a later time, you may have to pay a late enrollment penalty.

What Drugs Are Covered by Medicare Part D?

Medicare Part D covers a wide range of generic and name-brand drugs. Each plan has its own formulary (list of covered drugs), so make sure the plan you choose covers any specific medications you need.

All plans rank drugs in four tiers which are based on their formularies and are divided in different ways:

• Tier 1, lowest copayment: most generic prescription drugs
• Tier 2, medium copayment: preferred, brand-name prescription drugs
• Tier 3, higher copayment: non-preferred, brand-name prescription drugs
• Specialty tier, highest copayment: very high cost prescription drugs

Because plans rank drugs in four tiers based on their formulary, the price also varies. Drugs in low tiers, for example, will usually be cheaper than those in high tiers.

When it comes to cost, each plan varies in terms of deductibles, premiums, and the percentage of coverage. Many plans, however, require you to pay only their Part D premium.

If a drug you take isn’t included in your plan’s formulary, a similar one should be available. In other cases, if the drug you take isn’t listed in your plan’s formulary, you or your prescriber can submit a request to make an exception. Regardless, it’s important to keep in mind that a provider can make changes to its Part D plans at any time, adhering to Medicare guidelines. Your plan can also change its formulary due to drug therapy alterations, new drug releases, or new medical information.

Here are a few additional things to consider about formularies:

• Part D plans can remove drugs from their formularies after the FDA deems them unsafe or if their manufacturer removes them from the market.
• Name-brand drugs can be removed instantly if plans meet specific requirements. They are then replaced with new generic drugs.
• If there are other changes that involve a drug you take, your plan needs to:
  • Provide you with a written notice at least 30 days before the change date is effective.
  • When refilling, provide a written notice of the change. Your first month’s supply  will follow the same plan rules that were in effect before the change.

Drugs Excluded From Coverage

By law, certain drugs are excluded under Part D. They are:

• Over-the-counter drugs, even if your physician prescribes it
• Weight-loss or weight-gain drugs, even for noncosmetic purposes
• Cough and cold remedies prescribed solely for symptomatic relief
• Fertility drugs
• Erectile-dysfunction drugs, expect those that are medically necessary or FDA-approved to treat conditions other than what they’re designed to
• Cosmetic or hair-growth drugs
• Drugs bought outside the U.S.
• Vitamins and minerals, excluding niacin products, vitamin D analogs, prenatal vitamins, and those used for fluoride
• Drugs that can be covered under Medicare Part A or B, even if coverage isn’t available

Medicare Part D Cost

According to Medicare,2 many drug plans have a monthly premium, but the price varies by plan and other elements such as:

• Drug tier
• Your prescriptions and whether they’re on your plan’s formulary
• The drug benefit phase you’re in (i.e. if you have met your deductible or are in the catastrophic coverage phase)
• Your pharmacy (out-of-pocket expenses may be cheaper at a preferred pharmacy)
• If you receive Extra Help to pay for your Medicare drug coverage expenses
• Your state of residence

You may be expected to pay your monthly Part B premium on top of this. If you take insulin, you may be able to find a drug plan that covers a good portion. If so, you won’t have to pay over $35, and you may not pay a deductible. As mentioned previously, if you don’t sign up for Part D when eligible, there’s a chance you will be subject to a Part D late enrollment penalty.

You may also have to pay more if:

• You have a higher income compared to others
• Your income is higher than a certain limit, in which case you’re required to pay an additional expense on top of your plan premium

If the plan you choose has a monthly premium, then you may be able to get it deducted from your monthly Social Security or Railroad Retirement Board (RRB) payment.

Part D Coverage Phases

Medicare Part D has four coverage phases that impact your drug coverage and costs:

• Annual deductible: Once you purchase your first prescription of the plan year, you’ll pay the full cost until you reach the amount of your deductible. Some deductibles may only apply to drugs in specific tiers, so you won’t have to pay it if you don’t take any medications on that tier. While deductibles can vary from plan to plan, no plans deductible can exceed $505 in 2023. Some plans don’t have a deductible.
• Initial coverage: This phase begins instantly if your plan doesn’t have a deductible or once your prescription payments equal your plan’s deductible. As long as your medication is covered under your plan’s formulary, it will pay a portion of it. You’re responsible for the copayment or coinsurance. Keep in mind that price depends on the tier level assigned to your drug. The initial coverage phase ends once you and your plan’s spending on covered drugs matches the initial coverage limit Medicare sets for that year. For 2023, the limit is $4,660.
• Coverage gap: This phase is often referred to as the “donut hole.” Once you and your plan have spent a combined $4,660 on your covered drugs, this phase will start. While everyone won’t enter the coverage gap, your plan will have a temporary limit on how much it covers if you do. For name-brand and generic drugs, you’re responsible for 25 percent of costs. You leave the coverage gap once your total out-of-pocket expenses on covered drugs (excluding premiums) reach $7,400.
• Catastrophic coverage: Once your out-of-pocket costs on covered drugs hit $7,400, you’ll leave the coverage gap and enter catastrophic coverage. You’ll be responsible for a low coinsurance or copayment set by Medicare for all covered prescription drugs you take. You’re required to stay in this phase until the end of the plan year.

Eligibility

Part D coverage is optional, but it’s automatically offered with Original Medicare. You can receive it via Medicare Cost Plans, private fee-for-service plans, and Medical Savings Account plans, but you’re required to have Medicare Part A or Part B to join a separate Part D plan. You also need to be a U.S. citizen or lawfully present in the U.S.

How to Enroll in a Part D Plan

You can receive Part D coverage two ways: via Medicare Advantage plans or a stand-alone Part D plan. It’s important to know there are different enrollment periods, as well as different ways to enroll. When registering for the first time, you’ll have to do so either during your initial enrollment period, open enrollment period, or a special enrollment period. You can enroll a few different ways, such as:

• Visit Medicare Plan Finder or the plan carrier's website
• Fill out a paper enrollment form
• Call the carrier of the plan you’d like to enroll in
• Call 1-800-MEDICARE (1-800-633-4227) or 877-486-2048 (TTY)

Late-Enrollment Penalties

If you don’t enroll in a Medicare Part D plan during an enrollment period and then decide to enroll at another time, you may face late enrollment penalties. To avoid this, enroll in Part D as soon as you're eligible. If you wait, you could pay a 1 percent Part D late-enrollment penalty every month.

Tips for Filling Gaps in Prescription Drug Coverage

Part D won't cover all prescription drugs, but there are other ways you may be able to save.

• Extra Help: If you have a low income, Medicare’s Extra Help program is for you. It helps cover premiums, deductibles, and coinsurance related to your prescription drugs. If you qualify for the program, you’ll also avoid paying the late-enrollment penalty.
• Prescription discount card: Prescription discount cards are a free or low-cost way to help you save money on prescriptions. The cards can’t be used simultaneously with your plan benefits. Visit our list of the best prescription discount cards to learn more.
• Enhanced Medicare Part D plan: If you enroll in an enhanced Part D plan, know that they typically have higher premiums. They do, however, offer a large selection of benefits, such as no deductibles, extra coverage during the donut hole, and a wider drug formulary.