What Is Medicare Part D?
Medicare Part D is optional coverage for prescription drugs. Unlike Part A (hospital care) and Part B (medical care), Part D is run by private insurance companies approved by Medicare. If you have Medicare and want drug coverage, you pick a Part D plan on your own. Or you can get drug coverage as part of a Medicare Advantage plan. If you don't sign up when you first become eligible, you may pay a permanent penalty on your premiums for life. This is called a late-enrollment penalty.
Two Ways to Get Part D Coverage
You can get prescription drug coverage in two ways:
Standalone Prescription Drug Plans (PDPs)
If you have Original Medicare (Parts A and B), you can add a separate drug plan called a Prescription Drug Plan, or PDP. You keep your regular Medicare and add drug coverage on top. PDPs are available during the Annual Enrollment Period (usually October 15 to December 7). They're also available when you first become eligible for Medicare.
Medicare Advantage Plans with Drug Coverage
Many Medicare Advantage (Part C) plans include drug coverage. If you pick a Medicare Advantage plan, one company handles both your medical care and drugs. This may make it easier to coordinate. Some Medicare Advantage plans cover different drugs than their separate PDPs do.
Formularies and Drug Tiers
Each Part D plan has a formulary—a list of drugs the plan covers. Drugs are organized into tiers (levels). Your cost for a drug depends on which tier it's in. Most plans have four or five tiers:
- Tier 1 (Generic): Usually the cheapest. These are generic drugs available in many pharmacies.
- Tier 2 (Preferred Brand): Brand-name drugs the plan negotiated good prices for.
- Tier 3 (Non-preferred Brand): Brand drugs that cost more because generics or alternatives exist.
- Tier 4 (Specialty): Expensive drugs for complex conditions. These often have the highest costs or special rules.
- Tier 5 (Specialty – Highest): Some plans add a fifth tier for the most expensive drugs.
Your drug can move to a different tier from year to year. Or a plan's entire formulary (list of covered drugs) can change when the plan updates. Check your plan's formulary before you sign up and every year after. Your favorite drugs might move to a costlier tier or stop being covered.
Utilization Management Tools
Part D plans use several tools to control costs and make sure drugs are used appropriately:
Prior Authorization
The plan may require you or your doctor to get approval before you fill a prescription. This is common for specialty drugs and drugs that have cheaper options. Once approved, you can usually keep filling it without asking again for a certain time.
Step Therapy
The plan may ask you to try a cheaper drug first. Only if that drug doesn't work or you can't take it can you move to the drug your doctor prescribed. This saves money while making sure you try effective, lower-cost options first.
Quantity Limits
The plan may limit how much of a drug you can get in a time period. For example, you might be allowed one 30-day supply per month. You may need to ask for approval to get more.
Pharmacy Networks
Part D plans work with certain pharmacies. Most plans have a preferred pharmacy network where your costs are lowest and a standard network with higher costs. Mail-order and specialty pharmacies may also be in the network. These are helpful for maintenance medications (drugs you take every day or every month). Always check if your regular pharmacy is in your plan's network. If you use a pharmacy not in the network, you'll pay more.
The Coverage Phases: Understanding the "Donut Hole"
How much you pay for drugs changes as you spend more money on prescriptions. This happens in four separate phases. Recent laws have made this structure better. For the exact dollar amounts and caps for this year, see Medicare.gov's plan-comparison tool and our page on recent policy changes.
| Phase | What Happens | How It Works |
|---|---|---|
| Deductible | You pay the full cost of drugs until you've met your plan's deductible. | Your plan may have no deductible, or you may owe $0–several hundred dollars before drug coverage starts. Costs during this phase count toward your out-of-pocket spending. |
| Initial Coverage | You and the plan share costs (coinsurance or copayment) for covered drugs. | You pay your copay or coinsurance; the plan pays the rest. Your out-of-pocket costs and plan spending both count toward the total threshold for the next phase. |
| Coverage Gap ("Donut Hole") | Costs have increased, but coverage now follows special rules. | You receive manufacturer discounts on brand drugs and a higher percentage of generic drug costs covered. This phase was significantly improved by recent law; see policy changes for details. |
| Catastrophic Coverage | You've reached the out-of-pocket maximum; now the plan covers most costs. | You pay a small coinsurance (typically 5%) for covered drugs; Medicare and the plan cover the remainder. This continues for the rest of the calendar year. |
Recent laws have changed this structure for the better. The out-of-pocket cap (the most you have to pay) has gone down. Coverage in the gap phase (donut hole) has gotten better for everyone. These changes make drug costs more predictable and lower, especially if you take many expensive drugs. For exact dollar amounts and this year's rules, see our summary of recent policy changes or call your plan.
The Late-Enrollment Penalty
If you have Medicare and don't sign up for a Part D plan when you're first eligible, you may owe a permanent late-enrollment penalty. This fee gets added to your monthly premiums for as long as you have Part D coverage. The penalty is based on how long you went without coverage and the national average premium when you finally enroll. This penalty never goes away, so signing up right away is important for your wallet.
There are some exceptions. For example, you don't owe the penalty if you had creditable drug coverage (coverage from an employer or union). Not sure if you owe a penalty? Contact Medicare.gov or call Medicare.
Extra Help and Low-Income Subsidies
If your income and assets are low enough, you may qualify for Extra Help. This program is also called the Low-Income Subsidy program. It pays some or all of your Part D premiums (monthly costs), deductibles (what you pay before coverage starts), and cost-sharing (your share of the bill). Extra Help can cut your drug costs a lot. To apply or see if you qualify, visit our guide on getting help paying or call Social Security at 1-800-772-1213. You can also apply online at SSA.gov.
Choosing a Part D Plan
There are hundreds of plans available. Comparison tools will help you pick. Think about:
- Your specific medications: Use the plan-finder at Medicare.gov to see what tier each of your drugs is in and what you'll pay.
- Your pharmacy: Make sure your regular pharmacy is in the plan's network.
- Your budget: Look at the total cost for the year (monthly payment + deductible + what you'll pay for drugs), not just the monthly payment.
- Other benefits: If you're looking at Medicare Advantage plans, also check the medical benefits they offer.
Plans change every year. Review your coverage each year during open enrollment. Do this especially if your drugs change or if new rules take effect.
Related Topics
For more information on costs and decisions:
- Understanding Your Costs — A broader look at Medicare deductibles, copayments, and coinsurance.
- Medicare Advantage Plans — How Part C combines medical and drug coverage.
- Medigap (Supplement Insurance) — Medigap doesn't cover drugs, but it does help with Parts A and B costs.
- Getting Help Paying — Extra Help, Medicaid, and other financial assistance.
- Policy Changes — Recent reforms and improvements to drug coverage.