Part D: Prescription Coverage

Prescription Drug Plans

Original Medicare does not cover the costs of medications so Prescription Drug Plans (PDPs) are offered by private insurance companies approved by Medicare. Your choices will vary depending on where you live. In order to enroll into a Part D plan, Medicare beneficiaries must be enrolled in Part B.

Two Ways To Get Part D

Option 1: You can get Medicare Part D coverage through a stand-alone Medicare Prescription Drug Plan if you’re enrolled in Original Medicare.

Option 2: Most Medicare Advantage plans have prescription drug benefits which is why they are sometimes referred to as Medicare Advantage Prescription Drug Plans (MAPD).

Formularies & Drug Coverage

Every Medicare Prescription Drug Plan has a formulary — that is, a list of covered drugs. Formularies vary from plan to plan but most companies cover similar medications. In fact, they are required to include at least two drugs for each category and some categories require coverage for all drugs.

Late Enrollment Penalty

Medicare Part D coverage is technically optional, but if you don’t enroll in Part D as soon as you’re eligible, you are likely to pay a late-enrollment penalty if you enroll later. You can use this calculator to estimate your Late Enrollment Penalty. There are few exceptions to this rule so it is important to consult with an advisor before deciding to forego Part D coverage.

The cost of the late enrollment penalty depends on how long you went without Part D or creditable prescription drug coverage.

Medicare calculates the penalty by multiplying 1% of the “national base beneficiary premium” ($34.70 in 2024) times the number of full, uncovered months you didn’t have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium.

The national base beneficiary premium may increase each year, so your penalty amount may also increase each year.

Phases of Part D

Deductible phase: For stand-alone Medicare Prescription Drug Plans and Medicare Advantage Prescription Drug plans, you’ll pay 100% for medication costs until you reach the yearly deductible (if your plan has one). The standard deductible for 2024 is $545 and plans are not allowed to set their deductible higher than that amount.

Many Medicare Advantage plans have a $0 deductible for prescriptions. This can vary and, ultimately, depends on the plans available in your area.

Initial Coverage Phase: After you’ve reached the deductible, you’ll enter the initial coverage phase, where you will pay the plan’s cost share for covered medications. For example, if your plan has a $0 copay for Tier 1 drugs in this phase and you’re taking a medication that is Tier 1, your out-of-pocket-cost for that drug would be $0 a month.

Coverage Gap Phase (aka “donut hole”): Begins when you, and your plan, spend a combined $5,030 in 2024. While in the coverage gap, you’ll typically pay 25% of the plan’s cost for your drugs. For example, if you’re taking an expensive, brand-name medication that costs $600, you would be responsible to pay $150 (25%) for a month’s supply of that drug. 

Read more about the donut hole and whether or not it will affect you.

Catastrophic Coverage Phase: Fortunately, many people do not reach this phase of Part D. This phase begins if your drug costs in 2024 reach $8,000; on average, you will have spent $3,300 out of your own pocket when you enter this phase. In previous years, you’d be responsible to pay a small coinsurance or copayment for covered prescription drugs for the remainder of the year. After the catastrophic coverage phase is reached in 2024, you will pay $0 toward the cost of your drugs for the remainder of the year.