Medicare Part D Prescription Drug Plans

Medicare is the federal health insurance program for U.S. citizens aged 65 and over. 64.5 million Americans get at least some of their health insurance through the Medicare program.

Medicare Part D is the Medicare prescription drug benefit that went into effect in 2006. Under Part D, Medicare beneficiaries can get assistance paying for many of the prescription drugs they need to stay healthy, including brand-name and generic drugs and, in some cases, over-the-counter (OTC) medicine and supplies.

What Is Medicare Part D?

Part D is the Medicare drug plan 48 million senior enrollees depend on to pay for all or part of their prescription drug costs.

Offered to beneficiaries as an optional part of their overall Medicare package, Part D prescription drug plans are issued by private insurance companies authorized to bill Medicare for part of their costs. Medicare prescription drug plans are available to all citizens who are eligible for any part of Medicare, and applicants cannot be denied coverage because of a preexisting condition.

Part D plans do have limited enrollment windows, however, and late enrollments may result in a penalty rate for as long as the policy coverage lasts.

Part D plans can be organized in different ways. Some are part of an HMO that handles most of its pharmacy services internally. Some are PPO plans, which list a network of preferred pharmacies where beneficiaries can fill prescriptions at plan rates. Some private-payer options allow for a great deal of flexibility when filling prescriptions, though they may have higher out-of-pocket costs.

Medicare special needs plans (SNPs) are Medicare Advantage (Medicare Part C) plans for beneficiaries who have chronic conditions, such as kidney failure or Alzheimer’s disease, or who are dual eligible for Medicare and Medicaid. Medicare SNPs include Medicare prescription drug coverage.

It's a good idea to compare multiple Medicare prescription drug plans that are available where you live before you choose a plan. You can find out important information such as whether each plan covers the drugs you take, how much they cost and whether your pharmacy is part of the plan's preferred network.

Medicare Part D Covered Medications

So, what does Part D Medicare cover? Medicare Part D plans vary in coverage somewhat, but they all group covered prescriptions into five main categories, or tiers. A Medicare drug plan’s tiers and coverage details are listed in the plan’s drug formulary and typically include the following drug tiers:

• Tier 1, Preferred Generic
  This is the least expensive tier of prescription drugs Medicare plans can cover. Generic drugs in this class have expired patents and can be bought in bulk from preferred providers, lowering per-unit costs.
  
  
• Tier 2, Generic
  Generic, non-preferred drugs are sometimes a little more expensive than preferred generics, though they may not be. Prices for Tier 2 drugs vary by location and by plan.
  
  
• Tier 3, Preferred Brand-Name
  Tier 3 brand-name drugs are new enough to still be covered by a manufacturer’s patent, and so they tend to be more expensive than equivalent generics. Medications in this tier are still supplied by preferred providers, which may result in a discount rate.
  
  
• Tier 4, Non-Preferred Brand
  New and unusual drugs from non-preferred providers are in Tier 4. Prices can be high in this category, and not all plans cover every drug.
  
  
• Tier 5, Specialty and Experimental
  Specialty tier is an unofficial categorization for very new, experimental or otherwise difficult to administer drugs. Medications in this tier may be unproven, or they may require close monitoring to safely administer.

Premiums and Co-Payments

Part D plans offer different payment structures, and seniors can shop around for one that fits their needs. The maximum allowable Part D deductible in 2024 is $545 for the year. Some plans impose the full deductible, others charge a fraction of it, and others waive the deductible entirely.

Part D plan premiums can vary from plan to plan. SilverScript Medicare Prescription Drug Plans, for example, offered the lowest Part D premiums in the country in 2022. You can compare Medicare drug plans side-by-side to see the monthly premiums for plans available where you live, as well as the drugs they cover and the pharmacies where the plans are accepted.

Part D plans generally require a co-payment of 25% at the point of sale. Out-of-pocket costs top out at $8,000 for the coverage year in 2024, after which Medicare’s catastrophic coverage kicks in to pick up the rest of the year’s drug costs.

Seniors with low income, or those on certain assistance programs, may sign up for Extra Help, which covers most of the unpaid co-payments for prescription drugs.

Signing Up for Part D

Seniors who become eligible for Medicare may have the option to enroll in a Part D plan immediately after their benefits become active.

The initial enrollment period for Part D plans begins at the same time as a beneficiary’s initial enrollment period for Medicare Part A and/or Part B coverage. This is a 7-month period that begins on the first day of the month, three months before a beneficiary’s 65th birthday. The enrollment period closes on the last day of the third month after.

Thus, a senior who turns 65 on June 10 has an initial enrollment period that starts on March 1 of that year and ends on September 30. Seniors who enroll in Medicare Part D plans are encouraged to do so as early in this window as possible, as there can be a 3-month delay in benefits after a switch, and late enrollment could result in a coverage gap.

Enrolling in a Part D plan outside of your initial enrollment periods can potentially result in a lifetime late-enrollment penalty fee.

Seniors who need Part D coverage may be able to sign up during the fall Medicare Open Enrollment Period for Medicare Advantage and Prescription Drug plans, also called the Annual Enrollment Period (AEP). Medicare AEP begins on October 15 of each year and ends on December 7.

During AEP, beneficiaries can join a Medicare Part D plan, switch from one Part D plan to another or join a Medicare Advantage (Medicare Part C) plan that includes prescription drug coverage. These plans are often called Medicare Advantage Prescription Drug Plans (MA-PD).

Alternative Ways to Get Medicare Part D Benefits

Many seniors opt to receive their Medicare benefits through Medicare Advantage, also known as Part C. Like Part D, Part C plans are issued by private insurance carriers.

All Part C plans are required to offer the same benefits as Medicare Parts A and B (called Original Medicare), and all are free to offer additional benefits not covered by Original Medicare, such as vision, hearing and dental care.

Seniors who need prescription drug coverage may enroll in a Part C plan with a prescription component, or they can add a Part D plan later if their Medicare Advantage plan doesn’t include prescription drug coverage.

Part D coverage and Medicare Advantage plan costs and availability can vary, depending on the companies involved and where you live, so it's best to consult with a plan representative for details.