Medicare Part D offers prescription drug coverage.

Medicare Part D fills in the gaps of Parts A and B to cover prescription drug costs.

What is Medicare Part D?

Medicare Part D was established in 2003 as part of the Medicare Prescription Drug Improvement and Modernization Act, or MMA. Medicare began to cover prescription drugs under Part D in 2006.

Understanding Medicare Part D.

For more than 40 years, Medicare did not cover the cost of prescription drugs. Parts A and B still do not provide any coverage. Rather, those eligible for Medicare have two choices. They can buy a Medicare Advantage (Part C) plan that includes coverage for prescription drugs or they can buy Medicare Part D. If you are enrolled in Medicare Part A and/or B, and you do not have prescription drug coverage from any other source, you should consider enrolling in Medicare Part D. However, if you choose not to enroll when you’re first eligible and you do not have other creditable prescription drug coverage, you will be charged a penalty if you decide to enroll in Part D later.

How does Part D work?

There are various costs associated with Medicare Part D. Upon enrolling, you will pay a premium. This will be in addition to any premium you pay for Part B. Your premium will be higher if you are subject to the late enrollment penalty. Here are some reasons why you might want to choose Medicare Part D:

Medicare Part D deductible.

Each year, you’ll need to pay a deductible before Part D begins paying for drugs. The deductible can vary depending on your plan, but each year there is a maximum set by Medicare. Once you’ve met your deductible, the plan will pay a portion of the cost of your prescription drugs. The amount paid will be based on the formulary, which assigns each drug to a tier. Drug tiers are usually based on whether a drug is a generic or brand name and how much the drug costs.

Medicare Part D annual out-of-pocket cap.

Beginning in 2025, the coverage gap (often called the “donut hole”) was eliminated. In its place, Part D now has an annual out-of-pocket cap on what you pay for covered prescription drugs. The cap is $2,000 in 2025, $2,100 in 2026, and $2,400 in 2027. Amounts you pay for deductibles, copayments, and coinsurance count toward the cap, but monthly premiums do not. You may also qualify for Extra Help, a program that helps people with limited income and resources pay for Part D costs.

$0 in the catastrophic phase.

Once your out-of-pocket spending on covered drugs reaches the annual cap, you enter the catastrophic phase and pay $0 for covered Part D drugs for the rest of the calendar year. To make the cost easier to manage, the Medicare Prescription Payment Plan lets you spread your out-of-pocket drug costs across the year in monthly payments instead of paying large amounts at the pharmacy. The cap, like other Part D costs, is set annually, so it’s worth reviewing your plan each fall during the Annual Enrollment Period (October 15 to December 7).

You might not need Part D if you have Medicare Advantage.

If you have a Medicare Advantage Plan (Part C) that includes prescription drug coverage, you do not need to enroll in Part D. Most importantly, if you enroll in Part D anyway, you could be disenrolled from your Medicare Advantage plan and placed in Original Medicare Parts A and B. Therefore, be sure to check with your Advantage plan before enrolling.

Contact us if you have questions about Medicare Part D and your other drug coverage options.