Medicare Part D: Prescription Drug Coverage

Medicare is a federal health insurance program in which adults aged 65 and older can enroll. Among its offerings is a federally subsidized drug program known as Medicare Part D, which covers most categories of prescription medications.

Medicare Part D is separate from Medicare Part A, which focuses on hospital coverage, and Part B, which covers outpatient care. (Together, Medicare Parts A and B are known as traditional, or original, Medicare.) Unlike traditional Medicare, Medicare Part D is only available through private insurance companies.

Who Can Enroll in Medicare Part D, and When?

Those enrolled in Medicare Part A or Medicare Part B (or both) can opt to enroll in a Part D standalone prescription drug plan (PDP).

Although enrolling in Part D is optional in most cases, those who do not enroll when they first become eligible may face a late enrollment penalty. Seniors first become eligible three months before the month in which they turn 65. This is when an individual’s Initial Enrollment Period for Medicare begins.

If you instead choose to sign up for a Medicare Advantage plan, most will include prescription drug coverage.

Navigating Medicare Part D Plan Options

According to the Kaiser Family Foundation, the average person has access to nearly 60 plan options, including standalone prescription drug plans (PDPs) and Medicare Advantage plans.

For help in navigating all of these choices, visit the Medicare website. There, you can take advantage of an online tool that lets you search private drug plans available in your ZIP code and compare them. The information is also available by calling 1-800-MEDICARE.

What Does Medicare Part D Cost?

Monthly Premium

Given the wide variety of plan options, the expense can vary. In fact, per the Kaiser Family Foundation, monthly premiums across the 16 national PDPs span from $6 a month to $111 a month.

On average, however, the expected average cost of a Medicare Part D standalone drug plan in 2023 is $43 per month. This is an increase from $39 per month in 2022.

Deductible

In addition to the premium, most Part D plans for traditional Medicare beneficiaries will charge a deductible in 2023. (Most charge the standard maximum deductible of $505.) The majority of prescription drug plans also offer more benefits for higher monthly premiums.

Extra Help

For individuals with low income and limited means, Medicare Part D offers a benefit called the Extra Help program. This program assists Medicaid or Supplemental Security Income (SSI) beneficiaries with the costs of Medicare Part D, including premiums, deductibles, and coinsurance.

Coinsurance or Copay

After meeting a deductible (again, the 2023 maximum is $505), you must pay coinsurance or a copay. Medicare pays the remainder.

Coinsurance is usually a percentage (for example, 20 percent) of the cost of the drug. Your coinsurance amounts may vary throughout the year. A copay is a fixed fee that you pay each time.

What Prescription Drugs Are Covered by Medicare Part D?

Each Part D plan will list the specific drugs that it covers; these lists are called formularies. Note that plans do not cover the cost of over-the-counter medications.

Typically, Medicare Part D plans classify prescription medications in one of five tiers:

  • preferred generics
  • generics
  • preferred brands
  • non-preferred drugs
  • specialty drugs

Generic drugs tend to be the least expensive. For example, in 2023, the median standard cost sharing for a preferred generic is $1 across all PDPs. By contrast, it is $44 for a preferred brand.

The beneficiary’s share of the payment for the non-preferred tier of drugs is between 40 and 50 percent. This is the maximum permissible coinsurance amount in most national prescription drug plans.

For 15 percent to 25 percent of preferred tiered brands, prescription drug plans will require coinsurance rather than copays, which can make out-of-pocket payments less predictable.

When choosing a Medicare Part D plan, be sure to review the plan’s formulary first. You will want to ensure the specific medications you may need are covered and look at how much they cost under that plan. Each Medicare drug plan will also likely give you a list of local pharmacies where you can obtain their covered drugs.

Catastrophic Coverage

When your total out-of-pocket spending on prescriptions exceeds $7,400 for the year (in 2023), catastrophic coverage then takes effect.

Until 2024, those who spend more than this catastrophic coverage amount must contribute 5 percent of the cost of covered drugs for the remainder of the year.

An individual with a chronic health condition that may require numerous specialty drugs will often face having to pay thousands of dollars a year for the medications on which they rely.

Recent Legislation

Over time, prescription drug costs have been rising steadily. So much so that one recent survey revealed that a fifth of seniors on Medicare say they are skipping medications due to cost. In 2022, Congress passed the Inflation Reduction Act in part to help address this issue.

The Act is affecting Part D beneficiaries in several positive ways in 2023:

  • Medicare enrollee’s payments for insulin cannot exceed $35 per month in 2023. (The price cap does not extend to all insulin products, just the ones on your plan’s formulary.)
  • Many adult vaccines are now free to Part D enrollees.
  • Drug manufacturers must pay rebates to Medicare for medications with costs that surpass inflation, which could help prevent unreasonable rises in drug prices for beneficiaries.

It also creates changes for future years:

  • In 2024, beneficiaries will no longer pay a 5 percent coinsurance for catastrophic coverage.
  • The law will cap out-of-pocket spending on prescription medications for Part D enrollees at $2,000 in 2025.
  • The rule authorizes the federal government to negotiate the pricing of prescription medications with drug companies. These negotiated drug prices will begin to be available in 2026.

For answers to questions about Medicare and long-term care planning needs, find an elder law attorney near you.

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