What Is Medicare Part D? What It Costs and Covers

As a Medicare beneficiary, you are eligible for prescription drug insurance. This insurance covers a percentage of your medication costs. You can enroll in a Medicare Part D plan if you have Original Medicare. Or you can sign up for a Medicare Advantage plan which includes prescription drug coverage. 

If you’re currently not taking any expensive medications, drug insurance may not seem important. But it’s wise to enroll in at least an inexpensive drug plan as soon as you enroll in Medicare. If you delay and later on need to buy a policy to help pay for expensive drugs, you might be charged a penalty for late enrollment.¹ Read more on how to approach this decision, one among many you’ll make when getting covered by Medicare.

Two Ways to Get Medicare Drug Coverage 

Drug Plan with Original Medicare

If you choose Original Medicare, you can purchase a stand-alone Medicare Part D prescription drug plan through a private insurance company. For example, UnitedHealth Group, Humana, and CVS Health together insure about 56 percent of Medicare Part D enrollees. In 2023, 47% of Part D enrollees chose a stand-alone plan.²

Drug Plan with Medicare Advantage

If you enroll in a Medicare Advantage (Medicare Part C) plan, about 89% of Medicare Advantage plans have prescription drug coverage (MA-PD plans).³ Aetna, Humana, and Blue Cross Blue Shield are some of the many insurance companies that offer Medicare Advantage plans with prescription drugs. 

What Does Medicare Drug Insurance Cover?

Policies vary by which medications they cover, and how much you must pay. But even the least expensive prescription drug plans must cover most of the generic and brand name drugs and the insulin preparations that are generally needed by people on Medicare. And, it must cover all or most of the drugs in the following categories:

• Anticancer drugs (unless covered by Medicare Part B),
• Antidepressants,
• Antipsychotic medications,
• Anticonvulsive treatments for seizure disorders,
• HIV/AIDS treatments,
• Immunosuppressant medication⁴

Part D plans must also cover vaccines, including shingles shots, which are not covered by Medicare Part B. (The annual flu shot, pneumococcal, and COVID-19 vaccines are covered by Medicare Part B.) In 2023, the Medicare Part D insulin savings program provides insulin medication for a $35 maximum copayment.

What does Medicare drug insurance not cover? 

In general, Part D plans are not allowed to cover medications for:

• anorexia, weight loss or weight gain
• cough and colds symptomatic relief
• cosmetic purposes
• fertility drugs
• hair growth
• over-the-counter drugs
• sexual or erectile dysfunction
• vitamins and minerals, except for prenatal vitamins, niacin (when used to treat a condition), and fluoride

Plans with “enhanced alternative coverage” may include some of the drugs on the above list.⁵

Limitations on Coverage

It’s important to check the plan’s formulary, or list of covered drugs, to make sure your prescriptions are covered and find out about your out-of-pocket costs (deductible, coinsurance, copays). Whether stand-alone or part of a Medicare Advantage plan, prescription drug plans have different rules limiting coverage for medications, based on price.

For example, a generic medication might be considered Tier 2 and cost you very little out-of-pocket. But the name-brand and specialty Tier 3-5 drugs may cost considerably more. The plan may also require prior-authorization for prescriptions or require you to try a lower-priced drug first. ⁶

Who Is Eligible for Medicare Part D?

Those 65 or older who are entitled to or already enrolled in Medicare are eligible for Part D drug insurance. Also eligible are people who have received Social Security Disability Insurance (SSDI) benefits for more than 24 months and those who have been diagnosed with end-stage renal disease.⁷

What Does Medicare Part D cost?

Premiums

Monthly premium prices vary from plan to plan and depend on your income. Those with higher incomes will pay more. In 2023, single filers with income over $97,000 and couples over $194,000 will pay more. Adjustments ranging from $12.20 to $76.40 a month may be added to your premium.⁸

Deductible

A deductible is the amount you have to spend before the plan starts paying its share. Some drug plans do not have deductibles. The maximum permitted deductible for 2023 is $505.⁹

Copayment/Coinsurance 

A drug plan may have either copayments (a set amount you pay for medications in each tier) or coinsurance, a percentage that you pay for the price of the drug.¹⁰ 

What Is the Coverage Gap or Donut Hole?

Until your total drug costs hit $4,660, you pay the cost sharing designated in your policy in 2023. 

• When you reach the initial coverage limit of $4,660 (increased from $4,430 in 2022), you enter the coverage gap, also known as the donut hole. 
• You then pay 25% of costs for the costs of brand and generic drugs until your total out-of-pocket Part D spending reaches $7,400 
• At that point, the catastrophic limit kicks in and beneficiaries pay the greater of 5% or $4.15 for generic medications and $10.35 for brand-name drugs for the rest of the year.¹¹ 

What Is Extra Help and Who Is Eligible?

You may be eligible for lower premiums, deductibles and coinsurance through Medicare’s Extra Help program. In 2023, those enrolled in the program pay $4.15 for each generic and $10.35 for each brand name drug.

In 2023, you may qualify if your income is up to $16,660 for an individual and $33,240 for a couple and you have a limited amount of resources such as savings, stocks and bonds. If your income or resources change, you can apply for Extra Help at any time.¹² 

When Can You Enroll in Medicare Part D?

Initial Enrollment Period

When you turn 65 and are newly eligible for Medicare, you can add a stand-alone Part D drug plan or join a Medicare Advantage plan with drug coverage. Within the first 12-months after initial enrollment, you can switch from a Medicare Advantage plan to Original Medicare and purchase a stand-alone drug plan. Those who qualify for Medicare under 65 can sign up for Part D prescription drug coverage when first eligible.

Annual Election Periods

You can change your prescription drug coverage during the Annual Open Enrollment Period, which is October 15-December 7 each year. Your new coverage will start on January 1. During this period, you can also switch Medicare Advantage plans or switch to Original Medicare. 

A separate election period, called the Medicare Advantage Open Enrollment Period, from January 1-March 31 allows you to change Medicare Advantage plans (with or without drug coverage) or switch to Original Medicare and join a Part D prescription drug plan. 

Special Enrollment Period

Certain life events — such as moving to a new address, moving in or out of an institution (such as a skilled nursing facility or prison), and other special situations — can provide a special enrollment period for making changes to Medicare Advantage and Medicare prescription drug coverage.¹³

Find a Medicare Drug Plan in Your Area

Use the online Medicare Plan Finder tool for a list of the stand-along Part D plans and Medicare Advantage plans with drug insurance available in your ZIP code.¹⁴ The comparison tool shows the drugs covered by each plan, cost-sharing amounts, and whether you need prior authorization and preferred pharmacies.

Choose the Right Prescription Drug Plan for You

Here are some tips for finding a plan that meets your budget, needs and preferences.

• Check the prices. The monthly premium is an important consideration but look too at cost-sharing, such as deductibles, coinsurance and copays. A low premium may cost you more in the long run.
• If you prefer “one-stop shopping” and are willing to choose a plan that limits you to a network of providers, you may have lower premium costs with a Medicare Advantage plan (Part C) with prescription drug coverage. 
• If you take no or very few medications, you may want to opt for a low-premium plan. It will still cover most of the drugs that people on Medicare need.
• If you are taking specific long-term medications, check their availability and costs in various plans. If the drugs you take are generics, look for plans that charge you little or nothing for these.
• If you expect large medication expenses, it may pay to look for a plan that extends additional coverage if you reach high spending levels.
• When selecting a plan, check to see if they have a convenient preferred pharmacy, where you can often get added savings on prescription drugs.