Medicare 101: Part D

Medicare, the federal health insurance program that helps people over age 65 access healthcare, was first created in the 1960s. Since then, there have been a number of changes to Medicare—but one of the most significant was the introduction of Medicare Part D, which gave Medicare recipients a new way to receive prescription drug coverage.

Read on to learn more about Medicare Part D. For more information about Medicare Part A, Part B and Part C, take a look at the rest of the Medicare 101 blog series!

Medicare Part D: The Basics

The meaning of Medicare Part D is easy to remember, because “D” stands for drugs. By signing up to Medicare Part D, you are effectively adding on prescription drug coverage to your existing Medicare plan. Without Medicare Part D, you may end up paying hefty bills for various medications, depending on your healthcare needs. However, Medicare Part D is completely voluntary—so if you prefer to stick with Original Medicare (Parts A and B) alone, you can.

Unlike Original Medicare, Medicare Part D is exclusively provided by private insurance companies. When you enroll in a Part D plan, you are effectively paying for private insurance to supplement your government coverage, with the additional benefit that these private providers must follow federal regulations in terms of plan costs and coverage.

All Part D plans are required to cover at least two drugs from the most commonly prescribed drug categories, and must cover all available drugs in some categories like antidepressants, immunosuppressant drugs, and anticancer drugs. To see which specific drugs a plan covers, you can check their list of covered drugs, known as a formulary.

How to Enroll

You can enroll with a Part D plan as soon as you’re eligible for Medicare. If you don’t elect to get Part D coverage immediately, you’ll need to wait until Medicare’s open enrollment period (Oct 15 to Dec 7 every year). On the other hand, if you qualify for a special enrollment period due to a life change such as moving or leaving a job, you may qualify to sign up for a Part D plan at another time of the year.

As previously mentioned, signing up for Medicare Part D means choosing a plan from a private insurer. Online, you can see a list of available plans in your area and compare them to find one that works. When evaluating plans, consider the cost of premiums, deductibles and copays, as well as which drugs are covered.

On the other hand, you can also forgo Medicare Part D and enroll in a Medicare Advantage plan (also known as Medicare Part C) instead. Most Medicare Advantage plans roll up prescription drug coverage into a plan which also includes hospital and outpatient care; so instead of receiving Parts A and B via federal coverage and Part D from a private insurer, you’re getting everything on one private insurance plan.

Premiums

While every Medicare Part D plan is different, the average cost of monthly premiums comes out to around $43. People with an income above $97,000 may pay an extra amount on top of their Part D premium, which normally is withdrawn from your monthly Social Security check, or deposit. This additional, income-based payment also applies to people who receive prescription drug coverage via a Medicare Advantage plan.

Your Medicare Part D premium may also be higher if you don’t enroll with a plan as soon as you are eligible to receive Medicare. The idea is that people who haven’t been paying into the system as long shouldn’t be able to take advantage of low-priced coverage, without making additional payments. The late enrollment penalty is added on to your monthly Part D premium and is calculated based on the number of uncovered months as well as other figures, which change yearly. More information on these Part D penalty calculations is available online.

The good news is that the Part D premium penalty doesn’t apply if you receive drug coverage from another source; for example if you are still on your workplace health plan at age 65.

Deductibles & Copays

The federal government mandates that no Part D plan can have a yearly deductible higher than $505 (as of 2023), which means that no recipient will need to pay above this figure before their Medicare drug coverage kicks in. However, even after the deducible is paid, you may still be responsible for copays and coinsurance—in other words, money paid out of pocket for every prescription.

Out-of-pocket costs will vary depending on which Part D Medicare plan you choose, but in general, expect that name-brand drugs will come with a higher cost than generic ones. Drug costs can also differ depending on which pharmacy you use. If you want to learn more about drug costs, check out Medicare’s video resources online.

One slightly confusing aspect of Part D costs is what’s known as the “donut hole” or coverage gap. This term refers to the period in which a Medicare recipient has exceeded a certain yearly cost limit ($4,660 in 2023). At this point, you become responsible for 25% of the cost of drugs. You’ll continue to pay this amount until your total out-of-pocket payments for the year have reached a different limit ($7,400 in 2023), indicating that you have entered into what’s known as catastrophic coverage. At that point, your cost-sharing burden is reduced to 5%. Again, more information on the coverage gap and catastrophic coverage can be found online, or discussed with a representative from your insurance company.

Do I Need Medicare Part D?

The Health Policy Institute at Georgetown University estimates that over 131 million adults in the US use prescription drugs, including more than 87 percent of people over the age of 65. In other words: there’s a strong likelihood that if you’re old enough to enroll for Medicare, you are already paying for prescription drugs or will need medication sometime in the future. To avoid later penalties, many people choose to enroll with a Part D plan as soon as possible. A medical professional can offer further guidance and recommendations.