A beginner’s guide to Medicare Prescription Drug Coverage

When you were younger, you may not have had to take many — or maybe even any — medications. But that tends to change as we get older, particularly after age 65. Around 1 in 5 of older adults in the United States take 5 prescriptions drugs a day.¹ If you’re one of them, you know that medication costs can add up.

But one advantage to being older is becoming eligible for Medicare. Medicare can help pay for prescription drugs, but only if a person chooses to enroll in a plan with Medicare Prescription Drug Coverage.

Some Medicare Advantage plans include Part D prescription drug coverage (also called a MAPD plan). But you can also enroll in a standalone Medicare part D plan. Here’s what you need to know about these drug coverage plans.

What is Medicare prescription drug coverage (Part D)?

Basic Medicare, often called Original Medicare, has always had 2 parts. Part A covers hospitalization. Part B covers preventive care, outpatient services, and medical supplies. There’s also Part C, known as Medicare Advantage, which provides Part A and Part B coverage, and often includes additional benefits such as dental and vision.²

Medicare Part D helps cover the cost of prescription drugs, including many recommended vaccines. But you don’t get Part D automatically — you need to enroll in a Medicare Advantage plan that includes Part D (or a MAPD plan) or enroll in a standalone Medicare Part D plane. Part D helps cover the cost of certain brand-name and generic prescription medications (over-the-counter drugs generally aren’t covered).³

Who should enroll in Medicare Part D?

“Almost everyone eligible for Medicare should sign up for drug coverage to avoid the Part D late enrollment penalty,” says Ari Parker, the author of It’s Not Complicated: The Three Medicare Decisions to Protect Your Health & Money.   

If a person is enrolling in Original Medicare or Medicare Advantage, they should consider enrolling in Part D coverage at the same time, even if they don’t take any prescription drugs regularly. Waiting to enroll in Part D coverage can result in a late enrollment penalty.

How do you enroll in Medicare Part D?

There are 2 ways to get Part D prescription drug coverage:

• Buy a standalone Part D plan to supplement Original Medicare coverage
• Enroll in a MAPD plan

MAPD and standalone Part D plans are offered by insurance companies and health plans, such as UnitedHealthcare.

What prescription drugs are covered by Medicare Part D?

Each Medicare prescription drug plan has a list of the specific prescription drugs that it covers. This list is also known as a formulary.

By law, each Medicare prescription drug plan must cover at least 2 drugs in the most commonly prescribed drug categories and classes but can choose which specific drugs they cover. A plan’s formulary may not include your specific prescription drug, but in most cases a similar alternative drug will be covered.⁴

Different drugs appear in different coverage tiers, and the costs to the member may vary by tier. Generally, the lower the tier, the lower the portion of the drug’s cost the member will pay. Here’s an example:⁵

• Tier 1: $ 
  
• Tier 2: $$
• Tier 3: $$$
• Tier 4: $$$$
• Tier 5: $$$$$

When shopping for Medicare prescription drug coverage, a person should check whether the prescription drugs they take are covered by the plan and check the coverage tier. “The right plan will depend on the person’s list of medications,” Parker says.

How much does Medicare Part D coverage cost?

Coverage costs can vary depending on several factors:⁶

• The monthly premium — the amount that the member pays each month for the prescription drug coverage
• The deductible — the amount that the member pays out-of-pocket before the plan begins to pay
• Copays — an amount the member may be required to pay as their share of the covered prescription drug
• Coinsurance — an amount the member may be required to pay as their share of the covered prescription drug once the deductible is met (coinsurance is usually a percentage)

What are the 4 phases of coverage?

Most plans have 4 phases of cost-sharing. That’s the amount a member pays and the amount the plan pays.

• A yearly deductible. This is the amount you need to pay each year before the Medicare prescription plan pays its share.⁷
• Initial coverage, or the amount you and the Medicare prescription plan pays. These costs are shared until you hit a specific amount set by Medicare. (This changes every year.)⁸
• The coverage gap phase. Medicare members pay up to 25% of the cost of brand-name drugs and 25% of the cost of generic drugs.⁹
• The catastrophic coverage phase. This phase begins when the member’s annual out-of-pocket maximum is met for the year. The member pays only a small copay or coinsurance amount for drugs for the rest of the plan year.¹⁰ Note: Members receiving a low-income subsidy may have different benefit structures.

The Inflation Reduction Act will lower some of these costs. Starting in 2024, members won’t have copays or coinsurance costs during the catastrophic coverage phase. And starting in 2025, the coverage gap will be eliminated, and members’ out-of-pocket drug costs will be capped at $2,000.¹¹

There’s no doubt that Medicare Part D can get confusing. But take it one step at a time. The first one? Researching Medicare Part D coverage options.