Medicare comes in three parts: Part A, Part B, and Part D (Part C is a private alternative to Parts A and B).
Part A is free for most people on Medicare and covers hospital, hospice, nursing home, and home health care. Part B costs most people $148.50 per month in 2021 (up from $144.60 in 2020) and covers doctor visits and the types of medical services you would receive at those visits. Part D covers prescription drugs.
Here's what you need to know about Part D, and how much it will cost you.
- Medicare Part D covers prescription drugs; it can be added to Parts A and B, or you can receive Part D through a Medicare Advantage Plan (Part C).
- If you receive Part D coverage as part of Medicare, you pay your portion of the monthly premium. The cost varies, but the nationwide base is $33.06 per month.
- Each plan will also have a copayment and coinsurance amount.
Sign up as Soon as Possible
Like Parts A and B (and most other insurance plans), plans generally come with a deductible, which is the amount you will pay before insurance begins paying a portion of costs. Just like parts A and B, if you don’t sign up for prescription drug coverage when you’re first eligible you’ll probably pay a late-enrollment penalty unless one of two conditions applies:
- You are still working or have qualifying prescription drug coverage from another source.
- You receive extra help from Medicare. (Extra help is to assist low-income recipients in paying the costs of their prescription drugs.)
Paths to Medicare Drug Coverage
Medicare Part D coverage is available through two different paths.
First, you could add Part D coverage to Medicare Parts A and B. Medicare has a plan finder that helps you pick the coverage that fits your goals and budget. You can search by zip code, input the prescription drugs you take, and provide your local pharmacy, along with some other information. The plan finder will give you Part D coverage options, including cost.
Second, you could receive Part D coverage through a Medicare Advantage (Part C) or other Medicare health plan that offers prescription drug coverage as part of the plan.
Although Part C coverage costs more than Medicare, without a supplement or other coverage like Medigap insurance, Medicare leaves a lot of coverage gaps that may leave you with medical bills that you’re unable to pay. Most people elect to enroll in Part C coverage to protect against these costly expenses.
Medicare Part D Cost
If you elect to receive Part D coverage as part of Medicare, you will pay your portion of the monthly premium. The cost varies, depending on your income and the plan you choose, but the nationwide base premium is $33.06 per month for 2021.
Like Part B and most other insurance plans, plans generally come with a deductible, which is the amount you will pay before insurance begins paying a portion of costs. The highest annual deductible allowed by Medicare in 2021 is $445 (up from $435 in 2020). Many plans come with a much smaller deductible, and some don’t have one.
Each plan will also have a copayment and coinsurance amount. A copayment is a fixed amount that you pay for your prescriptions. The copayment on generic drugs might be $5, while brand-name drugs on certain tiers might require a $25 copayment. Higher tiers might require a larger copayment.
You might pay a coinsurance amount for drugs in the highest tiers. If the prescription costs $400, you might pay a coinsurance of 25%, making your portion of the bill $100.
Some drugs could require a copayment and coinsurance.
Because Part D is administered through private insurance companies, each may place certain drugs in different tiers. You might pay higher out-of-pocket expenses for the same drug in a different plan.
The Coverage Gap
In 2021, once you and your plan have spent $4,130 on covered prescription drugs, you enter the coverage gap, or "donut hole" as some people know it. The coverage gap is a temporary limit on what the plan will cover for drugs. If you receive extra help from Medicare, you won’t enter a coverage gap, but most insurance plans do not cover the gap.
In 2021, 75% of the price of both branded and generic drugs will be covered while you’re in the coverage gap. Your out-of-pocket expenses are what will eventually move you out of the coverage gap, and most of what you pay while in the gap will count. Some drug companies have signed an agreement with Medicare to offer discounts on brand-name drugs to people in the coverage gap.
How to Shop for Coverage
Sometimes cheaper is better, but in the case of Medicare Part D coverage, that's typically not the case. The most important thing to check is the plan’s coverage for the drugs you currently take. If a low-cost plan doesn’t cover your drugs, your out-of-pocket expenses will more than negate the money you saved on the premiums. Look at the benefits, and compare them to what you would pay out of pocket. Also look at the costs before, during, and after the donut hole. Once you calculate how much you would pay, compared to what the plan would pay, look at the premium. Sometimes, a higher premium will cost you less, because your out-of-pocket expenses are lower.