What Is Medicare Part D?

How Medicare Part D Works

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Definition

Medicare Part D is optional prescription drug coverage available to Medicare recipients for an extra cost.

Definition of Medicare Part D

Part D is an optional Medicare benefit that helps pay for prescription drug expenses. You must pay an additional premium if you want this coverage. Private insurance companies contract with the federal government to offer Part D programs through the Medicare system, so 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 only buy Medicare Part D if you also have either Medicare Part A and/or Medicare Part B. You must have both Part A and Part B to join a Medicare Advantage plan that offers prescription drug coverage. Not all Medicare Advantage plans offer drug coverage.

Key Takeaways

  • Medicare Part D is an optional coverage that can help you pay for your prescription drugs.
  • You may face a lifetime late enrollment penalty if you don’t enroll when you’re first eligible for Medicare and decide to enroll later.
  • Medicare Part D plans are offered by private insurance companies, so 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.


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. You can elect Part D during the seven-month period that you have to enroll in Parts A and B when you become eligible for Medicare (usually when you turn age 65).

Note

You may pay a late enrollment penalty that permanently increases your Part D premium if you don’t elect Part D coverage during your initial enrollment period.

You’ll pay a premium for Part D coverage as well as 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 these tiers are called and what they include can differ between plans. 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 $830 per month, the highest copayments, for years 2022 and 2023.

Note

Some plans may offer a second, lower-cost specialty tier beginning in 2022.

A formulary generally includes at least two drugs per category. One or both may be brand name drugs, or one may be a brand name and the other generic. Check with your doctor to see if one of the alternatives is acceptable if a prescription you take isn't listed in the formulary. It 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 the Medicare open enrollment period from 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's a temporary limit on the coverage offered by your Part D plan.

The Medicare donut hole starts when you and the plan have spent $4,430 total on covered prescriptions in 2022, and it ends once you’ve spent $7,050 out of pocket. The thresholds increase to $4,660 and $7,400 respectively in 2023. You’ll generally pay no more than 25% toward the cost of prescription drugs during this time.

You'll enter another level of Part D called “Catastrophic Coverage” after you leave the coverage gap. You'll 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, at this level.

How To Decide If You Need Part D

Selecting a Part D plan when you become eligible is often a good idea if you need prescription drug coverage, especially if you don’t currently have what Medicare considers “creditable prescription drug coverage.”

Note

Prescription drug coverage that pays at least as much as Medicare’s standard prescription drug coverage is usually considered “creditable.” It could be an existing plan you have through an employer or union.

You’ll probably pay a late enrollment penalty if you decide you want coverage later if you don’t elect Part D coverage during your initial enrollment period and you don’t have creditable prescription drug coverage. The late enrollment penalty permanently increases your Part D premium. But you can generally enroll in Part D later without paying a penalty if you do have creditable coverage and you keep it.

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? Do you want coverage in case you need prescription drugs later but currently take none or few? Is a low premium important to you?

Select multiple plans to compare the star rating, the premium, and the deductible between plans. Click on “Plan Details” to see that plan’s costs by drug tier.

Frequently Asked Questions (FAQs)

When can I enroll in Medicare Part D?

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. But most MA plans include prescription drug coverage so you wouldn't have to separately enroll in a Part D plan.

Can I change or drop a Medicare Part D plan after I've signed up?

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.

What is the Medicare special enrollment period?

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.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Centers for Medicare and Medicaid Services. "How To Get Prescription Drug Coverage."

  2. Centers for Medicare and Medicaid Services. “Your Guide to Medicare Prescription Drug Coverage," Page 8.

  3. Centers for Medicare and Medicaid Services. "Joining a Health or Drug Plan."

  4. Centers for Medicare and Medicaid Services. "Part D Late Enrollment Penalty."

  5. Centers for Medicare and Medicaid Services. "Medicare Advantage and Part D Drug Pricing Final Rule (CMS-4180-F)."

  6. Centers for Medicare and Medicaid Services. "What Medicare Part D Drug Plans Cover."

  7. Centers for Medicare and Medicaid Services. "Contract Year (CY) 2023 Final Part D Bidding Instructions," Pages 4-5.

  8. Centers for Medicare and Medicaid Services. "Contract Year 2022 Medicare Advantage and Part D Final Rule (CMS-4190-F2) Fact Sheet."

  9. Centers for Medicare and Medicaid Services. "Announcement of Calendar Year (CY) 2023 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies," Pages 74-75.

  10. Centers for Medicare and Medicaid Services. "Costs in the Coverage Gap."

  11. Centers for Medicare and Medicaid Services. "Medicare and You 2023," Page 83.

  12. Centers for Medicare and Medicaid Services. "3 Ways to Avoid the Part D Late Enrollment Penalty."

  13. Centers for Medicare and Medicaid Services. "Special Circumstances (Special Enrollment Periods)."

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