How Medicare Covers Your Prescription Drugs

What Medicare drug coverage is and how it works

Medicare drug coverage, called Part D, is an optional insurance plan that covers prescription medications. You buy it separately from your hospital and doctor coverage, and it's run by private insurance companies that Medicare contracts with. Part D is not automatic — you have to choose a plan and enroll, or you may pay a penalty later if you go without coverage and then sign up.

Part D works differently than your doctor visits or hospital stays. Instead of Medicare paying the provider directly, you get a card from your drug plan, show it at the pharmacy, and pay your share of the cost. The plan then pays the pharmacy the rest. What you pay depends on which drugs are on your plan's list, what tier they're in, and how much you've spent that year.

You can enroll in Part D when you first become may be able to access for Medicare, during the yearly open enrollment period (October 15 to December 7), or if you have a may have access to life event like losing other drug coverage. Missing these windows without good reason can mean paying a higher premium for as long as you have Medicare.

Key Takeaways

• Part D is optional coverage you purchase from a private insurance company, and enrollment happens during specific windows each year.
• Every Part D plan has a formulary — a list of covered drugs organized into tiers, with different costs for each tier.
• You pay different amounts at different stages of the year: a deductible first, then copays or coinsurance, then catastrophic coverage after you spend enough out of pocket.
• Switching plans every year during open enrollment can lower your costs, because drug prices and plan coverage change annually.
• If a drug isn't covered or costs too much, you can request an exception from your plan, and your doctor can appeal on your behalf.

The four stages of Part D costs during the year

Part D divides the year into cost stages, and what you pay changes as you move through them. Understanding where you are in the year helps you predict what a prescription will cost.

Stage 1: Deductible. You pay the full cost of drugs until you reach your plan's deductible. Most plans have a deductible between $0 and $550, though this amount changes each year. Some plans have no deductible at all. Once you hit the deductible, you move to the next stage.

Stage 2: Initial coverage. After you meet the deductible, you pay a copay (a flat amount like $5 or $15) or coinsurance (a percentage of the drug's cost, like 20%). The amount depends on the drug's tier. Tier 1 drugs (usually generics) cost less; Tier 5 drugs (usually brand-name with no generic) cost more. You stay in this stage until your total out-of-pocket spending reaches a certain amount — in 2024, that's $7,050, though it changes yearly.

Stage 3: Coverage gap (the "donut hole"). Once your out-of-pocket costs hit the limit, you enter the coverage gap. Here, you pay a larger share of drug costs — typically 25% of the price. This stage lasts until your total out-of-pocket spending reaches a catastrophic threshold (around $10,500 in 2024). The gap is smaller than it used to be, but it still exists on most plans.

Stage 4: Catastrophic coverage. After you spend enough out of pocket, Medicare covers most of the cost. You pay only a small copay (around $3.50 for generics, $8.75 for brand-name) or 5% of the cost, whichever is higher. This coverage continues through the end of the year.

How to read a drug plan's formulary

Every Part D plan publishes a formulary — a list of drugs it covers and what tier each one is in. The formulary is the most important document for choosing a plan, because it tells you whether your specific medications are covered and what you'll pay.

Formularies are organized by drug name (both brand and generic), and each drug is assigned a tier. Tier 1 is usually the cheapest (generics), Tier 2 is slightly more expensive (some generics and older brand-names), Tier 3 is more expensive (newer brand-names), Tier 4 is very expensive (brand-names with no generic), and Tier 5 is the most expensive (specialty drugs). Some plans also have a preferred pharmacy network, meaning you pay less if you use certain pharmacies.

You can look up a plan's formulary on Medicare.gov by entering your drugs and seeing which plans cover them. Many plans also let you search their formulary on their own website. If a drug you take is not on the formulary, you can ask the plan for an exception, or you can switch to a different plan during open enrollment.

When your drug isn't covered or costs too much

If your plan doesn't cover a drug, or if it's in a high tier and costs more than you can afford, you have options. You don't have stuck with the first answer.

The first step is to ask your plan for a formulary exception. This is a formal request to cover a drug that's not on the formulary, or to move it to a lower tier. Your doctor can submit the exception on your behalf, explaining why this drug is medically necessary for you. The plan has 72 hours to respond (or 24 hours in urgent cases). Many exceptions are granted, especially if you've already tried other drugs on the formulary and they didn't work.

If the exception is denied, you can appeal. Your doctor can also appeal directly. The appeals process takes longer but gives you another chance to make your case. During the appeal, you can still get the drug at the higher cost if you need it right away.

Another option is to switch to a different Part D plan during open enrollment. Since formularies change every year, a drug that costs a lot on one plan might be cheaper or free on another. Comparing plans in October before open enrollment ends in December can save you hundreds of dollars.

Choosing and switching Part D plans

You don't have to stay with the same Part D plan every year. Open enrollment runs from October 15 to December 7, and during this time you can switch to any other plan available in your area. The new coverage starts January 1.

To choose a plan, start by listing the drugs you take regularly. Then go to Medicare.gov and use the plan finder tool. Enter your drugs, your preferred pharmacies, and your budget. The tool will show you plans ranked by estimated yearly cost. Pay attention to the total cost, not just the copay — a plan with a $5 copay might cost more overall if the deductible is high or the coverage gap is steep.

Compare at least three plans. Look at the deductible, the copays for each of your drugs, whether your pharmacy is in-network, and whether the plan has a coverage gap. Some plans with slightly higher copays have lower deductibles and might cost less overall. Once you've chosen, you can enroll on Medicare.gov, by phone at 1-800-MEDICARE, or through the plan's website.

If you miss open enrollment and don't have a good reason, you'll pay a permanent penalty on top of your premium if you enroll later. The penalty is 1% of the national average Part D premium for each month you were without coverage. It's worth enrolling during the right window.

Extra help paying for Part D if your income is low

If your income is below a certain level, you may be able to get Extra Help — a federal program that pays some or all of your Part D costs. Extra Help covers premiums, deductibles, copays, and coinsurance. You don't have to be on Medicaid to may have access to.

Income limits for Extra Help change yearly, but in 2024 you generally may have access to if your monthly income is below about $1,550 for an individual or $2,100 for a couple. Your assets also matter — you can have up to about $15,000 in savings as an individual or $30,000 as a couple. These limits are higher than Medicaid's, so you might may have access to for Extra Help even if you don't may have access to for Medicaid.

You can apply for Extra Help on Social Security's website, by phone at 1-800-772-1213, or at your local Social Security office. You can also apply through your state Medicaid office. If you're approved, Social Security will tell your Part D plan, and your costs will drop automatically. You don't have to do anything else.

What happens if you don't enroll in Part D

Part D is optional, but there's a cost to going without it. If you don't enroll when you're first may be able to access and you don't have other drug coverage (like from an employer or the VA), you'll pay a late enrollment penalty for as long as you have Medicare.

The penalty is 1% of the national average Part D premium for each full month you were without coverage. In 2024, the national average premium is about $164, so the penalty could be around $1.60 per month for each month you were uninsured. If you go five years without enrolling, your penalty would be about $8 per month, added to whatever premium you pay when you finally sign up. The penalty compounds — it doesn't go away.

The only way to avoid the penalty is to enroll during your initial enrollment period (the three months before and after you turn 65 or become may be able to access for Medicare), during open enrollment each October through December, or if you have a may have access to life event like losing other coverage. If you're unsure whether you have creditable coverage (coverage that counts as good as Part D), contact your current plan to ask.

Frequently Asked Questions

Can I change my Part D plan if my drug costs go up during the year?

No, you're locked into your plan from January 1 through December 31. You can only switch during open enrollment (October 15 to December 7) or if you have a may have access to life event like losing your job or moving to a new state. If your costs become unmanageable, ask your plan for a formulary exception or talk to your doctor about generic alternatives.

What's the difference between a copay and coinsurance?

A copay is a flat amount you pay for each prescription, like $10. Coinsurance is a percentage of the drug's cost, like 20%. Which one you pay depends on your plan and the drug's tier. Coinsurance can be unpredictable because it changes if the drug's price changes, while a copay stays the same.

Do I have to use the pharmacy listed in my plan?

Most plans have a preferred pharmacy network where you pay less. You can use an out-of-network pharmacy, but you'll pay more. Check your plan's website or call the plan to see which pharmacies are in-network near you. Some plans cover mail-order pharmacies, which can be cheaper for drugs you take regularly.

What if I can't afford my copay at the pharmacy?

Talk to your pharmacist or your plan first. Some plans have programs that reduce copays for people with financial hardship. You can also ask your doctor about generic versions or different drugs that might cost less. If you may have access to for Extra Help, your copays will be much lower or free.

Does Part D cover over-the-counter drugs?

Standard Part D plans don't cover over-the-counter medications. However, some plans offer supplemental benefits that may cover certain over-the-counter items like pain relievers or cold medicine. Check your plan's details or call to ask what's included.