How Medicare Part D Prescription Drug Coverage Works
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What Is Medicare Part D?
Medicare Part D is prescription drug coverage offered by private insurance companies approved by Medicare. You can get Part D as a stand-alone plan (if you have Original Medicare) or as part of a Medicare Advantage plan that includes drug coverage.
How Part D Plans Work
Each Part D plan has its own list of covered drugs, called a formulary. Drugs are placed into tiers, and each tier has a different cost. Lower tiers (like generics) typically cost less, while higher tiers (like brand-name drugs) cost more.
You'll usually pay a monthly premium, and you may have a deductible, copays, or coinsurance depending on the plan and drug tier.
The Four Coverage Stages
Part D coverage generally moves through stages during the year:
- Deductible – You pay full price until you meet your plan's deductible.
- Initial coverage – You pay a copay or coinsurance and the plan pays the rest.
- Coverage gap (donut hole) – A temporary limit on what the plan pays.
- Catastrophic coverage – Once your out-of-pocket costs reach a certain limit, you pay very little for covered drugs for the rest of the year.
Why Comparing Plans Matters
Plans change their formularies and costs every year. A plan that covered your medications affordably this year might not next year. That's why it's important to review your Part D plan annually during the Open Enrollment Period.
Avoiding the Late Enrollment Penalty
If you don't enroll in Part D when first eligible and you go without creditable drug coverage for 63 or more days in a row, you may pay a late enrollment penalty that's added to your premium for as long as you have Part D.
What This Means for You
Part D covers prescription drugs through private plans, each with its own formulary and tiers. Reviewing your plan yearly during Open Enrollment helps keep your medications affordable, and enrolling on time avoids lifelong late penalties. A broker can compare plans based on your specific prescriptions.
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