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 it 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 drug 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. For this reason, different plans include different prescription drugs and have different associated costs. 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?
Part D adds prescription drug coverage to your existing Medicare health coverage. You must have either Medicare 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, a 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. What tiers are called and what they include can differ between plans, but here’s an 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
Beginning in 2022, some plans may offer a second, lower-cost specialty tier.
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.
Use Medicare’s Plan Finder to compare Medicare plans during Medicare open enrollment period of Oct. 15 to Dec. 7 each year.
The Medicare Donut Hole and Catastrophic Coverage
In addition to the premium, the deductible, copays, the formulary, and the different drug tiers, you should consider the “coverage gap” (also called the Medicare “donut hole”) to understand how Part D plans work and how much yours will cost. The donut hole 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. In 2022, the Medicare donut hole starts when you and the plan have spent $4,430 total on covered prescriptions, and ends once you’ve spent $7,050 out of pocket (the amounts typically change each year). During this time, you’ll generally pay no more than 25% toward the cost of prescription drugs.
Once you’ve left the coverage gap, you enter 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
If you need prescription drug coverage, selecting a Part D plan when you become eligible is often a good idea—especially if you don’t currently have what Medicare considers “creditable prescription drug coverage.”
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 don’t elect Part D coverage during your initial enrollment period and you don’t have creditable prescription drug coverage, you’ll probably pay a late enrollment penalty if you decide you want it later. The late enrollment penalty permanently increases your Part D premium.
However, if you do have creditable coverage and keep it, you can generally enroll in Part D later without paying a penalty.
How Do I Choose a Part D Plan?
Perhaps the most important consideration when choosing a Part D plan is whether that plan covers the specific prescriptions you take. You can input the drugs you take and compare plan options using Medicare’s comparison tool. Otherwise, consider your priorities. Do you want:
- Protection from high drug costs?
- Coverage in case you need prescription drugs (but currently take none or few)?
- A low premium?
Select multiple plans to compare the star rating, premium, and deductible between plans. And click on “Plan Details” to see that plan’s costs by drug tier.
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 Original Medicare (Parts A and B) or in some Medicare Advantage (MA) plans, though most MA plans include prescription drug coverage (meaning you don’t need to separately enroll in a Part D plan).
Each year, you can opt to join, change, or drop a Medicare drug plan during Medicare open enrollment, but you may pay a late enrollment penalty when you join a plan if you’ve gone without creditable drug coverage for 63 days or more.
You can generally enroll in Part D if you lose your job and your employer’s drug coverage (or if you lose other creditable drug coverage) via a Medicare special enrollment period. Moving from an area in which your Part D plan operated to an area in which it doesn’t also gives you a chance to re-enroll in a Part D plan.
- Medicare Part D is an optional coverage that can help pay for your prescription drugs.
- If you don’t enroll when you’re first eligible for Medicare and decide to enroll later, you may face a lifetime late enrollment penalty.
- Medicare Part D plans are offered by private insurance companies; many have different premiums, copays, deductibles, and formularies.
- Compare plan features and formularies to decide which Part D prescription drug plan is best for you.