Medicare Part D is optional prescription drug coverage available to Medicare recipients for an extra cost. But deciding whether to enroll in Medicare Part D can have permanent consequences—good or bad.
Learn how Medicare Part D works, when and under what circumstances you can enroll, and what to consider when choosing a plan.
Definition of Medicare Part D
Part D is an optional Medicare benefit that helps pay for your prescription expenses. If you want this coverage, you will have to pay an additional premium. Private insurance companies contract with the federal government to offer Part D programs through the Medicare system. Different plans include different prescription drugs and have different associated costs, so it’s important to review multiple plans before deciding which plan to buy—or if you’ll buy one at all.
You can buy Medicare Part D only if you also have either Medicare Part A and/or Medicare Part B.
To join a Medicare Advantage Plan that offers prescription drug coverage, you must have both Part A and Part B. Not all Medicare Advantage Plans offer drug coverage.
How Does Medicare Part D Work?
Medicare Part D adds prescription drug coverage to your existing Medicare health coverage. You must have either Part A or Part B to get it. When you become eligible for Medicare (usually, when you turn 65), you can elect Part D during the seven-month period that you have to enroll in Parts A and B.
If you don’t elect Part D coverage during your initial enrollment period, you may pay a late enrollment penalty that permanently increases your Part D premium.
For Part D coverage, you’ll pay a premium, deductible, and copays that differ between types of drugs. Drugs covered by each Part D plan are listed in their “formulary,” and each formulary is generally required to include drugs in six categories or protected classes: antidepressants, antipsychotics, anticonvulsants, immunosuppressants for treatment of transplant rejection, antiretrovirals, and antineoplastics.
The drugs in the plan’s formulary may be further placed into different tiers that determine your cost. For example:
- Tier 1: The most generic drugs with the lowest copayments
- Tier 2: Preferred brand-name drugs with medium copayments
- Tier 3: Non-preferred brand name drugs with higher copayments
- Specialty: Drugs that cost more than $670 per month, the highest copayments
A formulary generally includes at least two drugs per category; one or both may be brand-name or one may be a brand name and the other generic. If one of the prescriptions that you take is not listed in the formulary, you should check with your doctor to see if one of the alternatives is acceptable. That might be the generic equivalent of the brand-name drug you take or an altogether different drug in the same category.
A plan’s formulary is usually a major consideration when choosing a plan because to be useful, the formulary should contain the drugs you need.
The Coverage Gap and Catastrophic Coverage
In addition to the premium, deductible, copays, formulary, and different drug tiers, you need to consider the “coverage gap” (also called the “donut hole”) to understand how Part D plans work and how much they cost. The coverage gap indicates when there is a temporary limit on the coverage offered by your Part D plan. In 2021, it starts when you and the drug plan have spent $4,130 total on covered prescriptions, and ends once you’ve spent $6,550 out of pocket (the amounts generally change each year). During this time, for example, you’ll pay 25% toward the cost of generic drugs.
During the coverage gap, brand-name and generic drugs may be treated differently when it comes to how much of their overall cost will apply toward getting you out of the coverage gap.
Once you’ve left the coverage gap, you enter yet another level of Part D called “Catastrophic Coverage.” At that level, you will be charged a small coinsurance amount or copayment, such as the greater of 5% or a small copay for the remainder of the coverage year.
How To Decide If You Need Part D
Medicare Part D is insurance. If you need prescription drug coverage, selecting a Part D plan when you’re eligible to enroll is probably a good idea—especially if you don’t currently have what Medicare considers “creditable prescription drug coverage.” If you don’t elect Part D coverage during your initial enrollment period and you don’t have creditable prescription drug coverage, you’ll likely pay a late enrollment penalty if you decide you want it later. The late enrollment penalty permanently increases your Part D premium.
Prescription drug coverage that pays at least as much as Medicare’s standard prescription drug coverage is usually considered “creditable,” and could be an existing plan you have through an employer or union.
If you have creditable prescription coverage, you can generally keep your coverage when you become eligible for Medicare, and enroll in Part D later without paying a penalty. If you’re not convinced that you’ll use Part D, consider enrolling in a plan that serves your area (not all do) and has the lowest premium.
How Do I Choose a Part D Plan?
There are many factors to consider when selecting a Part D plan. If you currently take prescriptions, among your prime considerations will probably be whether they are covered.
Otherwise, consider your priorities. Do you want:
- Protection from high drug costs?
- Balanced prescription drug costs during the plan year?
- A plan that offers lower costs for generics?
- Coverage in case you need prescription drugs (but you currently take none or few)?
- The convenience of all health care and drug benefits through a single plan (despite reduced choices)?
- A low premium?
Once you’ve established your priorities, compare plan options using Medicare’s comparison tool. View plan details to compare premiums, deductibles, and copays for different drug tiers. You can also input specific drugs you currently take to see which plans cover them.
How and When Can I Start, Change, or End My Part D Plan?
You can enroll in Part D when you become eligible for and enroll in Regular Medicare or in a Medicare Advantage plan. Each year, you can join a Medicare drug plan during open enrollment, but you may pay a late enrollment penalty if you did not enroll in a Part D plan during your initial enrollment period and did not have creditable prescription drug coverage at that time. If you went without creditable prescription drug coverage for 63 or more days in a row, you may also owe a penalty if you enroll in Part D later.
If you have already enrolled in Medicare or in some kinds of Medicare Advantage Plans, you can enroll in Part D if you lose your job and your employer’s drug coverage, or if you lose other creditable prescription drug coverage. Moving from a service area in which your existing Part D plan operated to an area in which it doesn’t also give you a chance to re-enroll.
You can terminate Part D coverage during the annual enrollment period, but if you go 63 or more days in a row without creditable prescription coverage, you’ll likely face a penalty if you later wish to re-enroll. To disenroll from Part D, you can:
- Call Medicare at 1-800-MEDICARE
- Mail or fax a letter to Medicare telling them that you want to disenroll
- If available, end your plan online
- Call the Part D plan directly; the issuer will probably request that you sign and return certain forms
The disenrollment will be effective as of January 1 of the following year.
- Medicare Part D is an optional coverage available for a cost that can help pay for prescription drugs.
- Medicare Part D is sold by private insurance companies that have contracted with Medicare to offer it to people eligible for Medicare.
- Not all Part D plans operate everywhere, nor do all of the plans offer the same prescription drugs in their formularies.
- Compare plan premiums, deductibles, copays, and formularies to decide which Part D plan is best for you.
- Not enrolling in Part D during the initial enrollment period could result in a late-enrollment penalty that permanently increases your Part D premium.