- Medicare Part D provides prescription drug insurance coverage for seniors age 65 or older.
- These prescription drug plans are regulated by the federal government but sold by private companies.
- You’ll pay a premium for a Medicare Part D plan, plus be responsible for deductibles and copayments and coinsurance, which vary depending on the type of drug.
- Once your drug costs reach a certain level every year, you will encounter a coverage gap that will require you to pay a larger percentage of your prescription drug costs.
- Instead of signing up for a separate Medicare Part D plan, you can sign up for a Medicare Advantage plan, which typically includes prescription drug coverage.
When Medicare was created in the 1960s, this federal health insurance program for anyone 65 and older provided coverage for hospital stays, doctor visits and other essential care. But seniors had to pay for prescription drugs themselves. And those bills can really add up as you get older.
Fortunately, this coverage gap was filled in 2003, when Congress expanded Medicare to cover prescription drugs. However, these plans—called Medicare Part D—carry costs of their own, and Medicare enrollees are still on their own when it comes to finding ways to keep those costs as low as possible.
Here’s what you need to know about Medicare Part D plan costs and how best to manage this coverage.
Inside this article
What is Medicare Part D?
To understand what you’ll pay for a Medicare Part D plan, it helps to understand how these plans work in the first place. Medicare Part D is a prescription drug benefit available to Medicare enrollees to cover at least a portion of the cost of prescriptions.
Unlike Medicare Part A (hospital coverage) and Part B (health insurance), Medicare Part D isn’t administered by the federal government. Instead, it’s regulated by the federal government but run by private insurance companies. That means you’ll have multiple drug plans to choose from, each offering slightly different coverage.
How Part D coverage works
Each Medicare Part D plan has what’s called a “formulary,” which is the fancy name for the list of drugs the plan covers. Plans must cover at least two drugs in the most commonly prescribed categories, and you’ll typically find at least one name brand and one generic option.
Within each formulary, prescription drugs are organized into different tiers based on price.
Drugs in the low tiers are cheaper, often generic drugs, and copayments tend to be modest. Those in the highest tiers are more expensive, brand-name medications requiring higher copayments or coinsurance.
“There are many different types of Medicare Part D plans with their own drug formularies and networks, so where a person lives will determine what drugs are covered and how much they are covered for,” says Kelly Maxwell, CEO of Seniors Mutual, an insurance agency specializing in the seniors market.
Each Part D plan publishes its formulary, so you can pick one that covers the drugs you take. That said, plans can change their formularies, and the insurer must give you at least a month’s notice before dropping a drug. If your plan stops carrying a drug you take, it may offer an exception if you submit a letter from your doctor.
Medicare Part D costs
As with other types of health insurance, with Medicare Part D you can incur all sorts of costs, including premiums, a deductible, and copayments or coinsurance.
When you enroll in Medicare Part D, you’ll pay the premium your plan charges. In 2022, the average national Medicare Part D premium is $33.37 a month.
“Medicare Part D costs vary pretty considerably,” says Maxwell. “That being said, most people will only have to pay $10 to $25 a month. There are outliers on the high end, however.“
With a high income, you’ll pay an extra premium directly to Medicare, not your insurance company. In 2022, this amount starts at $12.40 a month for those with incomes above $91,000 for single filers and $182,000 for joint filers. At the high end, it’s $77.90 a month for those with incomes above $500,000 for single filers and $750,000 for joint filers.
With a Medicare Part D plan, you may have to meet an annual deductible, which is the amount you must pay out of pocket before your insurance covers its share. Your deductible will vary depending on the plan you choose, but it cannot exceed $480 in 2022. And some plans have no deductible at all.
Another cost that will be familiar to anyone with health insurance is coinsurance or copayments. This is the amount you pay out of pocket on every prescription, either a flat fee (copayment) or percent of the cost (coinsurance). The amounts will vary depending on the tier of the drug you’re getting: the lower the tier, the less you’ll pay. You can often lower your costs by opting for a generic version of the drug you’ve been prescribed.
According to an analysis by the Kaiser Family Foundation, this is the range of cost-sharing you’ll encounter for various classes of prescription drugs:
Preferred generic: $0 to $5 copayments
Generic: $1 to $19 copayments
Preferred brands: $30 to $47 copayments
Non-preferred drugs: 30% to 50% coinsurance
Specialty: 25% to 33% coinsurance
One important thing to know about Medicare Part D costs is the coverage gap, also known as the donut hole. This gap begins once you and your drug plan have spent a combined $4,430 on covered drugs for the year.
While you’re in the coverage gap, you’re responsible for 25% of the cost of any prescription drug. For brand-name drugs, the manufacturer discounts 70% of the cost, while your insurance plan covers the final 5%. For generic drugs, you’ll pay 25% of the cost, while your insurance plan pays the other 75%.
You’ll remain in the coverage gap until your out-of-pocket spending reaches $7,050.
Late enrollment penalty
If you don’t sign up for Medicare Part D when you’re eligible and don’t have other prescription drug coverage in the meantime (like an employer plan), you may be charged a late enrollment penalty when you eventually sign up.
The penalty is 1% of the national base beneficiary premium, which is $33.37 in 2022, multiplied by the number of months you went without coverage. Unfortunately, you’ll have to continue paying the penalty for as long as you have a Medicare Part D plan.
Medicare Part D vs. Medicare Advantage
Instead of signing up for Original Medicare (Parts A and B) and adding a Medicare Part D prescription drug plan, you can pick a Medicare Advantage plan, also known as Medicare Part C. These plans are offered by Medicare-approved private insurers, but still subject to Medicare regulations.
Most Medicare Advantage plans wrap all three parts of Medicare—A, B and D—into a single plan. “Medicare Part D is automatically included in many, but not all, Medicare Advantage plans,” says Maxwell. “This is a big determining factor for which Medicare Advantage plan people decide to enroll in.”
If you do choose a Medicare Advantage plan without prescription drug coverage, you’ll still need a separate Medicare Part D plan.
One of the benefits of signing up for a Medicare Advantage plan with prescription drug coverage rather than Original Medicare and Part D is that you are likely to have more comprehensive coverage. For example, you may not have the coverage gap that exists with Medicare Part D plans.
Keep in mind that Medicare Advantage plans are more limited in other ways. You will likely have to stick to a network of health care providers to have your care covered, you may need referrals for specialists, and your coverage may not travel with you to another part of the country.
How to sign up for Medicare Part D
To sign up for Medicare Part D, you’ll have to be 65 or older or be younger than 65 and have either a disability or end-stage renal failure.
There are a few different times you can sign up for Medicare Part D. First, you can sign up during your initial enrollment period, which is the three months before you turn 65, the month you turn 65, and three months after your birthday.
If you have other prescription drug coverage when you turn 65, you’ll be able to sign up during a special enrollment period if that coverage ends.
Finally, you can enroll in Medicare Part D during the annual open enrollment period that runs from Oct. 15 to Dec. 7 each year. That’s when you can also switch Part D plans or drop your prescription drug coverage altogether.
Once you’re eligible, actually signing up for Medicare Part D is easy. You can do so at Medicare.gov.