Breaking It Down: What Is Medicare Part D?

• Medicare is a health insurance program created by the federal government to provide healthcare for older Americans, younger Americans with disabilities, and those with end-stage renal disease (ESRD).

• Medicare Part D is a stand-alone prescription drug plan that allows beneficiaries to receive help paying their medication costs.

• A Medicare Part D drug plan covers most outpatient prescription drugs.

• The Medicare Part D prescription drug benefit covers a wide range of medications to ensure beneficiaries receive the prescription drugs they need.

Plenty of people may be familiar with the term ​“Medicare”—especially once they approach the age of 65. However, Medicare coverage contains multiple parts that focus on different medical needs and services that a person may require. These parts include hospital insurance (Part A), medical insurance (Part B), and prescription drugs (Part D). Part D is the Medicare drug benefit.

This article breaks down what exactly Part D is, how much it can cost, and what it covers.

Medicare is a federal government health insurance program that provides coverage for those age 65 and older, younger Americans with disabilities, or those with end-stage renal disease (ESRD). Medicare is comprised of various sections, called Medicare Parts, each one created to cover specific healthcare services.

Medicare is broken into different parts, each one designated for coverage of specific healthcare services. The parts of Original Medicare are: 

• Medicare Part A (hospital insurance) 

• Medicare Part B (medical insurance)

Neither of these Medicare Parts covers prescription drugs. If Original Medicare enrollees want coverage for prescription medications, they’d need to enroll in Part D, a separate drug plan.

Medicare beneficiaries also have the option to enroll in a Medicare Advantage Plan, known as Medicare Part C. In most Medicare Advantage Plans, drug coverage is included, along with hospital insurance and medical insurance.

Medicare Part D are Medicare’s prescription drug plans. These drug plans help cover a portion of a Medicare beneficiary’s medications. Medication costs can add up quickly and lead to large out-of-pocket costs without insurance. Part D helps to shoulder the prescription drug costs so beneficiaries can get the medications they need.

Prescription drug coverage is not part of Original Medicare. However, a person can still purchase a Part D stand alone plan through a private insurance company, as long as they also are enrolled in Original Medicare. Medicare drug coverage can be added to Original Medicare coverage as soon as the person is eligible for enrollment in the program.

Medicare Advantage plans offer another option for a beneficiary to receive Part A and Part B coverage. MA plans are offered through private insurance companies and often bundle Part A and B coverage along with additional benefits for prescription drugs, hearing, dental, and/​or vision coverage. 

Medicare Part D prescription drug plans are available as part of many Medicare Advantage Plans. Specific benefits may be based on the plan type chosen and the insurance provider so it’s important to speak with a licensed insurance agent about what plans include.

Part D prescription drug coverage is required to cover a wide range of medications taken by Medicare beneficiaries. Even the least expensive plans must cover medications (both prescription and generic brands) in the following categories:

• Antidepressants

• Anticancer drugs (unless covered by Medicare Part B)

• Antipsychotic medications

• Anticonvulsive treatments for seizure disorders

• HIV/AIDS treatments

• Immunosuppressant medications

• Vaccines (unless covered by Medicare Part B)

However, each prescription drug plan varies in terms of exactly what they cover outside of these categories. All drug plans have their own lists of covered drugs, referred to as a formulary. 

How Does a Formulary Work?

Formularies often divide the medications into tiers, with each level having a specific cost. Tiers are usually designated by brand name drugs, generic drugs, etc. Examples of each tier are:

• Tier 1: Typically the lowest copayment: most generic prescription drugs

• Tier 2: Typically a mid-range copayment: preferred, brand-name prescription drugs

• Tier 3: Typically a higher copayment: non-preferred, brand-name prescription drugs

• Specialty tier: Typically the highest copayment: very high-cost prescription drugs

Depending on the prescription written for a person, the medications within these tiers can be negotiated in price. Some drug plans have 5 tier and occasionally 6 tier formularies, which varies from plan to plan. 

Additionally, these formularies can change their list of drugs and what they offer at any time to accommodate newer drug options and price changes. It’s important to check each plan to see what is covered and how much it will cost. 

For more information about formularies, tier levels, and drug prices visit this resource.

While there are many medications that Part D does cover, there are a few categories that it does not cover. Some examples of these categories are medications pertaining to:

• Weight loss, weight gain, or anorexia

• Cough and cold symptomatic relief

• Cosmetic purposes

• Fertility drugs

• Hair growth

• Sexual and erectile dysfunction

• Vitamins and minerals (with an exception of prenatal vitamins, niacin (if used to treat a condition) and fluoride)

• Over-the-counter (OTC) drugs

Whether Part D is purchased separately or included in a plan, there are still costs associated with it. Here is a breakdown of what a person should expect in terms of Part D costs.

• Premiums: There is a monthly premium for Part D, though each plan’s premium will vary depending on the specific plan and a person’s income. The higher the income, the higher the premium, so checking the premium’s cost when selecting a plan is essential.

• Deductible: A deductible is how much money a beneficiary will have to spend before their coverage kicks in and pays its portion of the costs. The maximum permitted deductible cost for beneficiaries in 2023 is $505. Some drug plans may not have a deductible.

• Copayment/​Coinsurance: A drug plan may either require a person to make copayments, which would be a set payment amount for each tier of the formulary or pay coinsurance which would be a percentage a person pays for the price of the drug. Check with the plan to determine which option they require.

Extra Help is a federal program that can help people with limited income or little access to resources pay Medicare prescription drug costs. These include costs such as premiums, deductibles, and even copayments. For a person to qualify for the Extra Help program, they must also be eligible and be enrolled to receive Medicaid services.

Note: To find out more information about the Extra Help program, visit this resource.

If a person doesn’t take many medications at the time they turn 65, it can be tempting to opt-out of adding Part D coverage initially, or choosing a plan that doesn’t have prescription drug coverage to save on premiums. However, while Part D is optional, it’s in the best interest of most people to at least select a low coverage prescription drug plan, even if they don’t believe they will use it. 

If a person doesn’t enroll in a Medicare Part D plan once they are eligible and don’t have other creditable prescription drug coverage or Extra Help and instead decide to enroll down the line, they will have to pay a late penalty for the entirety of the time they have prescription drug coverage.

Note: Learn more about late enrollment penalties in this resource.

There are specific enrollment periods that are available for a person to sign up for Part D, which include:

• Initial Enrollment Period (IEP): This period lasts for seven months beginning three months before a beneficiary turns 65, includes the beneficiary’s birthday month, and lasts three months after the month and beneficiary turns 65.

• Open Enrollment Period (OEP): This period runs from October 15-December 7 of each year. During this time a person can join, drop, or switch plans.

• Medicare Advantage Open Enrollment Period: This period runs from January 1‑March 31 of each year. If already enrolled in a Medicare Advantage Plan, a person can switch to a new Medicare Advantage Plan, or switch to an Original Medicare plan and enroll in a separate prescription drug plan during this time.

• Special Enrollment Period (SEP): If a person has a special situation that prevents them from enrolling in a plan during any of the previously mentioned enrollment periods, there is a possibility they may qualify for a special enrollment period. These periods vary, and depend on circumstance.