What Medicare Part D Covers and How the Costs Work

Medicare Part D is prescription drug coverage you add to Original Medicare

Medicare Part D is a separate insurance plan that covers prescription medications. It is not automatic — you choose a plan and pay a monthly premium, usually between $7 and $100 depending on which plan you pick and where you live. Part D is run by private insurance companies, not Medicare directly, though Medicare sets the rules they follow.

You can add Part D to Original Medicare (Part A and Part B), or it comes built into Medicare Advantage plans (Part C). If you have Original Medicare and do not sign up for Part D when you first become may be able to access, you will pay a penalty on your premium for as long as you have Medicare — even if you sign up later. The penalty is about 1% of the national average Part D premium for each month you went without it.

Part D covers most prescription drugs, but not all. It does not cover over-the-counter medications, and each plan has its own list of covered drugs, called a formulary. Your doctor's medication might be on one plan's formulary but not another's, so checking the formulary before you pick a plan matters.

Key Takeaways

• Part D is optional but carries a lifetime penalty if you delay signing up, so you should enroll during your initial may be able to access period or during the annual open enrollment in October through December.
• You choose from multiple plans offered by private insurers, and each plan has different drugs on its formulary and different costs, so comparing plans each year is worth your time.
• Part D has a coverage gap (the "donut hole") where you pay more out of pocket after you and your plan spend a certain amount, though catastrophic coverage kicks in after that.
• If your income is low, you may be able to get help paying Part D premiums and out-of-pocket costs through the Low-Income Subsidy program.
• You can change Part D plans once a year during open enrollment, and you can also switch if you have a major life change like moving to a new state.

How Part D costs break down through the year

Part D has four cost stages, and understanding them helps you predict what you will pay. The first stage is the deductible — the amount you pay out of pocket before the plan starts to help. Deductibles range from $0 to around $505 in 2024, depending on the plan. Some plans have no deductible at all.

Once you hit your deductible, you enter the initial coverage stage. Here, you and the plan split the cost of your drugs. You might pay 25% and the plan pays 75%, or the split might be different depending on your plan. You stay in this stage until you and your plan have spent a combined $4,850 in 2024 (this number changes each year).

After you and your plan spend $4,850, you enter the coverage gap, often called the "donut hole." In this stage, you pay a larger share of the drug cost — currently 25% of the price for most drugs, though this percentage is slowly decreasing by law. You stay in the gap until your out-of-pocket spending alone reaches $7,050 in 2024.

Once your out-of-pocket spending hits that threshold, you enter catastrophic coverage. The plan then pays most of the cost, and you pay only a small copay or coinsurance for the rest of the year. This protects you from unlimited costs if you need expensive medications.

Choosing a Part D plan and checking your drugs

Medicare publishes a plan finder tool on Medicare.gov where you can enter your medications and see which plans cover them and at what cost. This is the fastest way to narrow your choices. You enter each drug name, strength, and quantity, and the tool shows you plans ranked by total cost — premium plus what you will pay out of pocket for your specific drugs.

Plans vary widely. One plan might charge $15 for a drug while another charges $50, and one plan might have a $0 deductible while another has $500. The cheapest premium is not always the cheapest overall if your drugs are expensive on that plan. The plan finder does the math for you.

When you find a plan you like, you can enroll through Medicare.gov, by phone at 1-800-MEDICARE, or directly through the insurance company. Enrollment during the annual open enrollment period (October 15 through December 7) takes effect January 1. If you are new to Medicare, you have a two-month window from when you first become may be able to access to sign up without penalty.

What happens if your plan does not cover a drug

If your doctor prescribes a drug that is not on your plan's formulary, you have options. You can ask your doctor to prescribe a different drug that is on the formulary. You can ask your plan for an exception, which means asking them to cover the drug anyway — plans must respond to exceptions within 72 hours for urgent requests.

An exception is not may provide. The plan will look at whether there is a similar drug on the formulary that would work for you. If there is, they will usually deny the exception. If your doctor can document that you have already tried the similar drugs and they did not work, or that you have a medical reason you need this specific drug, the plan is more likely to approve it.

If the exception is denied, you can appeal. Your doctor can help you file the appeal and provide medical evidence. The appeals process takes longer than an exception request, but it is free.

Low-Income Subsidy and other help with costs

If your income is below a certain level, you may be able to get the Low-Income Subsidy (LIS), which helps pay your Part D premiums and out-of-pocket costs. In 2024, you may be may be able to access if your income is below about $20,000 for an individual or $27,000 for a couple, though these numbers change yearly and vary by state.

If you get the subsidy, you pay little or nothing for your premiums, and your deductible, copays, and coinsurance are capped at much lower amounts. You do not have to apply separately — Social Security automatically checks if you may have access to when you turn 65. If you think you may have access to but have not heard anything, you can call Social Security at 1-800-772-1213.

Some drug manufacturers also offer patient assistance programs that help pay for their medications if you meet income requirements. Your doctor or pharmacist can tell you whether your drug has a program. These programs are separate from Medicare and can work alongside Part D.

When you can change your Part D plan

You can change Part D plans once a year during the annual open enrollment period from October 15 through December 7. Changes take effect January 1. This is the main time to switch, and it is when you should compare plans again — the cheapest plan for your drugs changes from year to year as formularies and prices shift.

You can also change plans if you have a may have access to life event: you move to a new state, you lose other drug coverage, your income drops enough to may have access to for the Low-Income Subsidy, or your plan leaves the market. You have 60 days from the event to make the change. Moving to a new state is common because Part D plans are different in each state.

If you miss the deadline to change plans, you are stuck with your current plan until the next open enrollment period, unless you have another may have access to event. The penalty for late enrollment also applies if you go without Part D coverage for more than 63 days in a row.

How Part D works with other insurance

If you have drug coverage from a current or former employer, or from a union, you need to know whether it is "creditable coverage" — meaning it is at least as good as Part D. If it is, you can delay Part D without penalty. Your employer or union plan should tell you in writing whether the coverage is creditable.

If you have Medicaid (state health insurance for low income), Part D works alongside it. Medicaid covers drugs that Part D does not, and Part D covers drugs that Medicaid does not. You are enrolled in both, and they coordinate to cover your medications.

If you have a Medicare Advantage plan (Part C), drug coverage is built in. You do not choose a separate Part D plan. The drug coverage in Medicare Advantage varies by plan, so check the formulary when you choose your Medicare Advantage plan.

Frequently Asked Questions

What if I turn 65 and do not sign up for Part D right away?

You have two months from the month you turn 65 to sign up without penalty. After that, you pay a penalty for as long as you have Medicare. The penalty is roughly 1% of the national average Part D premium per month you were without coverage. If you go without for two years, your penalty is roughly 24% higher than the base premium, and it does not go away.

Can I use my Part D plan at any pharmacy?

Most Part D plans have a network of pharmacies where your copays are lowest. You can use pharmacies outside the network, but you will pay more. Some plans have mail-order pharmacies for maintenance drugs you take regularly. Check your plan's pharmacy network before you pick a plan if you have a pharmacy you prefer.

What if I cannot afford my medications even with Part D?

Talk to your pharmacist or doctor about generic versions, which are usually much cheaper. Ask your doctor if a different drug on your plan's formulary would work. If you have low income, apply for the Low-Income Subsidy. Some drug makers offer free or reduced-cost medications through patient assistance programs. Your doctor or pharmacist can help you find these programs.

Do I have to use the same Part D plan every year?

No. You can change plans every year during open enrollment in October through December. Many people do because formularies and prices change. Use the Medicare plan finder tool each year to see if a different plan would cost less for your specific drugs.

What if my doctor wants me to take a drug that costs a lot in the coverage gap?

Ask your doctor if there is a similar drug on your plan's formulary that costs less. If not, ask your plan for an exception to cover the drug anyway. Your doctor can submit medical evidence that you need this specific drug. If the exception is denied, you can appeal, and your doctor can help with that too.