Medicare Part D: Navigating prescription drug coverage

Jan 8, 2025 12:47 AM

Medicare Part D: Navigating prescription drug coverage1

　　Need drug coverage? The race is on.© Ljupco Smokovski/stock.adobe.com, © nuruddean/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.Medicare Part D provides prescription drug coverage for anyone age 65 and older who is enrolled in Medicare. Alongside Part A for hospital expenses and Part B for outpatient services, Part D is an important component of health care for millions of older adults.

　　Prescription drugs often make up a significant portion of seniors’ out-of-pocket medical expenses. Understanding how Part D works and when to enroll is key to helping you maintain comprehensive and affordable medical coverage.

　　What is Medicare Part D?Medicare Part D is a component of the larger Medicare system, which includes Part A and Part B. Introduced in 2006, Part D helps to cover the cost of prescription drugs for those enrolled in Medicare, starting at age 65.

　　Medicare Part D prescription plans are optional. But if you don’t enroll when you’re first eligible, you may be assessed a late-enrollment fee that results in a higher monthly premium. The exception is if you have existing, “creditable” prescription drug coverage, such as through an employer-sponsored health care plan. If so, you can enroll in Medicare Part D later without incurring a penalty.

　　How to enroll in Medicare Part D: Eligibility and stepsTo enroll in Medicare Part D, you must be eligible for Medicare, either by turning 65 or meeting certain other requirements, such as having a disability or serious health condition.

　　Medicare Part D prescription plan: To enroll in Medicare Part D drug coverage, you must have either Part A or Part B. Part D is considered an add-on to either of these programs.Medicare Advantage plan: Also called Medicare Part C, an Advantage plan combines all your Medicare coverage into one policy. Parts A and B are required to enroll. Not all Advantage plans include prescription coverage, so be sure to compare.Other Medicare health plans: Medicare Cost plans are an alternative to Advantage plans. They permit out-of-network care and allow you to add Part D separately. The Program of All-Inclusive Care for the Elderly (PACE) includes prescription drug coverage, eliminating the need to enroll in Part D. PACE is available to seniors who qualify for both Medicare and Medicaid and meet the criteria for nursing home care, but prefer to stay in their homes. Medicare enrollment periodsMedicare has regular enrollment periods. Know when to sign up for or change your Medicare drug plan to ensure you have sufficient coverage.

Enrollment period	When you can enroll	Actions you can take
Initial enrollment (Part A and Part B)	Three months before turning 65 until three months after you turn 65	Join any Part D plan as long as you have Part A and Part B
Initial enrollment (starting Part B later)	Three months before your Medicare Part B plan starts (as noted in your enrollment paperwork)	Join a Medicare Advantage plan that includes prescription drug coverage or add Part D
Open enrollment	October 15 to December 7	Add or drop drug coverage for original Medicare or Medicare Advantage, or switch between them
Medicare Advantage open enrollment	January 1 to March 31, or within the first three months of signing up for Medicare	Switch to a Medicare Advantage plan with the drug coverage you want or change to original Medicare
Special enrollment	Anytime you experience a major life event or there’s a significant change to your life circumstances, such as a move or a substantial change in coverage availability	Review and enroll in a new plan or add drug coverage

How much does Medicare Part D cost?Medicare Part D costs include your premium, annual deductible, and copayments or coinsurance.

　　Insurance premium. The base premium for 2025 is $36.78, but higher-income beneficiaries will pay a surcharge. For individuals earning $105,000 or more annually ($210,000 for couples filing a joint tax return), the projected additional amount for 2025 ranges from $13.70 to $85.80, depending on income. Also, some drug plans impose fees in addition to the base premium. To get the best deal, compare the features of Medicare Advantage and Medigap (supplemental Medicare insurance) plans and their costs.

　　Plan deductible. Medicare Part D deductibles—that is, the amount you pay before your insurance kicks in—vary by plan. Not all drugs are treated the same. Prescription drugs are sorted by tiers; some drugs may be covered before you meet your deductible. Check your plan details and its formulary for more information on drug tiers.

　　Copayment and coinsurance. The amounts you pay after your deductible is met are known as copayments and coinsurance. How much you pay depends on your plan and whether the drug is generic or brand-name. There are exceptions. The Inflation Reduction Act placed a $35 monthly cap on the cost of insulin for those with Medicare Part D coverage, and recommended vaccines are free.

　　How to avoid a Medicare Part D late enrollment feePart D imposes a late enrollment fee if you fail to sign up when you’re eligible and lack other drug coverage. The fee lasts for as long as you have a Part D plan and equals 1% of the national base fee for each month you were uninsured, rounded to the nearest 10 cents.

　　Enrollment fee example. Suppose you go 16 months without enrolling in Medicare Part D and have no other prescription drug coverage. You enroll in 2024 when the base rate is $34.70. To calculate your fee, multiply $34.70 by 0.01 (or 1%), which equals 0.347. Then, multiply that amount by 16 months, which comes to $5.55. Round that sum to the nearest 10 cents, and you get $5.60. Add that amount to $34.70 and you wind up with a monthly premium of $40.30.

　　Medicare Part D’s doughnut hole and coming changesWith Medicare Part D, after your prescription drug expenses equal $5,030 (in 2024), your coverage is reduced until another threshold is met: $8,000. Within this gap, known as the “doughnut hole,” you’re responsible for paying up to 25% of the cost for covered brand-name and generic drugs. The increase in out-of-pocket costs can strain the budgets of those who take multiple or expensive medications and have limited incomes.

　　Although the doughnut hole remains in place through 2024, it will disappear the next year because of changes included in the Inflation Reduction Act of 2022. Starting in 2025, a cap will limit annual drug costs to $2,000. After meeting that threshold, any additional covered medications won’t cost you a dime.

　　The bottom lineMillions of seniors 65 and older rely on Medicare Part D to help manage prescription drug costs, which can be substantial. Enrolling in Part D requires that you either have Part A or Part B. Failing to enroll when you first become eligible may result in a permanent fee added to your monthly premium. Some Medicare Advantage plans include prescription drug coverage, eliminating the need to purchase Part D separately.

　　Changes to the Part D program will eliminate the “doughnut hole” that many beneficiaries fall into, which results in much higher coinsurance costs until their out-of-pocket expenses reach a certain amount. The doughnut hole will disappear starting in 2025. The new rule caps annual drug expenses at $2,000, providing more financial relief for seniors with high prescription drug expenses. As with any financial product, review and compare your prescription drug plan choices and ask questions to find the best deal for your insurance dollars.

　　ReferencesDrug Coverage (Part D) | medicare.govPart D Improvements | cms.govJoining a Plan | medicare.gov

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