The Basics of Medicare: What is Medicare Part D?

What is Medicare Part D?

Medicare Part D is insurance specifically for prescription drugs. There are two ways to obtain this coverage, depending on your existing Medicare plan.

1. Medicare Part D and Original Medicare If you have Original Medicare (Part A and/or Part B), you can purchase a stand-alone Medicare Part D plan from a private insurance company to receive prescription drug coverage. Various plans with different costs and coverage options are available, and you’ll pay a separate premium for the Part D plan.

2. Medicare Part D and Medicare Advantage Medicare Advantage, also known as Medicare Part C, is an alternative bundled plan sold by private insurance companies. Medicare Advantage plans encompass all benefits of Part A and Part B, with many also including prescription drug coverage.

If you have Medicare Advantage, you typically cannot buy a separate stand-alone Medicare Prescription Drug plan. However, there are exceptions for certain types of Medicare Advantage plans that do not offer their own prescription drug coverage.

What does Medicare Part D cover?

Medicare Part D plans have specific coverage limitations. These plans maintain a formulary, which is a list of drugs they cover. The formulary categorizes drugs into tiers with varying out-of-pocket costs.

Here are some key points about Medicare Part D coverage:

1. Minimum Standards: Medicare Part D plans must adhere to certain minimum standards established by the federal government.
2. Required Categories: Plans are obligated to cover specific drug categories, such as medications for treating asthma or high blood pressure.
3. Minimum Drug Coverage: Within each category, the plans must cover at least two distinct drugs.
4. Exceptions: If there is a drug that your Medicare Prescription Drug  plan does not cover but you or your healthcare provider believe it is medically necessary, you can request an exception. Your provider may need to provide evidence of the drug’s medical necessity for it to be covered by your plan.

How much does Medicare Prescription Drug plan cost?

Medicare Prescription Drug  plans typically involve premiums and various combinations of deductibles, copays, and coinsurance. The specific costs depend on the chosen plan and the coverage phase.

Here are some details regarding Medicare Part D costs:

Medicare Part D premiums: The premiums for Medicare Part D plans are determined by the individual plans. The amount you pay will depend on the specific plan you select.

• Stand-alone Medicare Part D plans: The average premium for basic coverage in 2023 is $31.50 per month, according to the Centers for Medicare & Medicaid Services.
• Medicare Advantage plans: Medicare Advantage plans bundle coverage, including prescription drugs, so there is no separate premium for Part D. However, individuals with higher incomes may be subject to an income-related monthly adjustment amount (IRMAA) on top of their premiums.

Medicare Part D copays and coinsurance: Medicare Part D coverage consists of four phases based on your out-of-pocket spending for covered prescription drugs throughout the year.

Here are the four phases and their associated costs:

1. Deductible Phase: Before your plan begins covering drugs, you need to meet the annual deductible. The maximum deductible allowed by law in 2023 is $505.
2. Initial Coverage Phase: During this phase, you pay copays or coinsurance for covered drugs based on your plan’s formulary. You move to the next phase once you and your plan have spent a combined total of $4,660 in 2023 for covered drugs.
3. Doughnut Hole Phase: This phase involves paying up to 25% of the cost of covered drugs instead of the copays or coinsurance specified in the plan’s formulary. It is also referred to as the “coverage gap.” You enter the final phase when your total out-of-pocket spending for covered drugs reaches $7,400 in 2023.
4. Catastrophic Coverage Phase: In this phase, you pay either 5% of the cost of your covered prescription drugs or a specified amount (e.g., $4.15 for generic drugs or $10.35 for brand-name drugs in 2023), whichever is higher. This phase continues until the end of the year.

*Starting in 2024, the Inflation Reduction Act eliminates the 5% coinsurance during the catastrophic coverage phase.

Note: If you qualify for Extra Help, a Medicare program, your drug costs will be different, and there is no coverage gap.

Out-of-pocket cap: Currently, there is no cap on out-of-pocket spending with Medicare Prescription Drug . However, following the passage of the Inflation Reduction Act, starting in 2024, reaching the catastrophic coverage phase will eliminate any further out-of-pocket costs.

A significant change occurs in 2025 when a $2,000 out-of-pocket spending cap for Medicare Part D will be implemented.

Medicare Prescription Drug plan enrollment

• Initial Enrollment Period During the initial enrollment period, which spans seven months, you can enroll in a stand-alone Medicare Part D plan or a Medicare Advantage plan that includes Part D prescription drug coverage. The period begins three months before the month you turn 65, includes your birthday month, and ends three months after your birthday month.

Note: If your birthday falls on the first day of any month, your initial enrollment period starts four months before you turn 65 and ends two months after your birthday month.

• Special Enrollment Period (if eligible) A special enrollment period allows you to sign up for Medicare coverage outside of your initial enrollment period or open enrollment period. If you lose current coverage, such as creditable prescription drug coverage from an employer, you may qualify for a special enrollment period.

Special enrollment periods typically last for two months, starting either the month after your employment ends or the month after you lose your qualifying employer insurance, whichever happens first. By enrolling during a special enrollment period, you can avoid late enrollment penalties.

Medicare Prescription Drug plan late enrollment penalty If you fail to enroll during your initial enrollment period and do not have creditable prescription drug coverage, you will likely incur a late enrollment penalty. Creditable prescription drug coverage refers to coverage from your or your spouse’s employer or union that pays, on average, at least the same amount as standard Medicare drug coverage.

• Open Enrollment Period The fall open enrollment period for Medicare and Medicare Advantage runs from October 15 to December 7 each year. During this time, you can join or switch to a different Medicare Part D or Medicare Advantage plan.

If you have a Medicare Advantage plan, there is an additional opportunity during the Medicare Advantage open enrollment period, which runs from January 1 to March 31 each year. This allows you to switch plans or switch to Original Medicare with the option to purchase a stand-alone Medicare Part D plan.

Finding the right Medicare Part D prescription drug plan

The interactive tool on Medicare.gov can assist you in finding a Medicare Part D plan that covers your prescribed medications. It also helps you compare costs among available Medicare Part D and Medicare Advantage plans.

Consider the following factors when comparing plans:

• Check the Formulary: Ensure that the medicines you currently take and any you may need in the future are covered by the plans you are considering. Consult your healthcare providers for information on brand-name and generic medicines to look for, as well as any alternative options.
• Plan Changes: Formularies can change regularly. Your insurer should provide a Notice of Plan Change when such changes occur. Read the document carefully.
• Pharmacy Network: Most Medicare Part D plans negotiate with a network of pharmacies to secure lower costs. Check if your preferred pharmacy or an equally convenient one is in the plan’s network. Additionally, compare prices for using mail-order services.

If your plan changes and it affects the prescription drugs you require, you can switch plans during Medicare’s open enrollment period, which takes place from October 15 to December 7. Changes made during this period go into effect on January 1 of the following year.