Medicare covers some of the costs of prescription medications through "Part D." This Medicare Part D prescription drug benefit is administered through private insurance companies and replaces drug coverage previously provided through medigap plans, many managed care plans, Medicare drug discount cards, and most Medicaid coverage.
Medicare Part D, however, does not make medication free. Most beneficiaries must pay a small monthly premium, a yearly deductible, and a copayment or coinsurance for each prescription.
Anyone entitled to Medicare Part A (whether actually enrolled or not), or anyone currently enrolled in Medicare Part B, may join Medicare Part D. (To learn more about Medicare Part A and Medicare Part B, read Nolo's article Medicare FAQ.)
Enrollment is voluntary, except for people who also receive benefits from Medicaid. If you qualify for Medicaid, the government automatically enrolls you in a Medicare Part D plan, through which you will receive your prescription drug coverage.
Medicare Part D does not replace drug coverage through Veterans Affairs, TRICARE, the Federal Employee Health Benefits program, or employer-sponsored drug coverage if that coverage is equal to what is offered by a basic Medicare Part D plan.
Part D drug coverage is available through a stand-alone prescription drug plan (PDP), for those who use traditional Medicare, or as the prescription drug component (called an MA-PD) of a Medicare Advantage managed care plan, which is like an HMO or PPO. Medicare Advantage plans don't charge a separate monthly premium for Part D, and some waive the Part D deductible. A growing number of Medicare Advantage plans now include Part D coverage.
Most beneficiaries pay a monthly premium, a yearly deductible, and a copayment for each prescription. However, some plans waive the deductible and some low-income Medicare beneficiaries can get help with Part D costs. (Some Medicare beneficiaries may qualify for a low-income subsidy (LIS), called Extra Help, to help pay costs associated with Part D plans.)
A premium is the monthly amount you pay directly to your prescription drug or managed care plan to maintain enrollment in Part D coverage. Amounts are typically from about $30 to $50 per month.
The deductible is the amount you must pay out-of-pocket for covered medications before your Part D plan begins contributing. With many plans, the 2021 deductible is $445 per year. However, some plans offer "first dollar" (no-deductible) coverage, which means the plan begins paying its share for an enrollee's first covered prescription of the year.
After you pay the deductible, your Part D plan pays most of the cost of covered drugs. You are personally responsible for the remainder, known as a copayment, or coinsurance. Under Medicare's minimum standards, people without a low-income subsidy pay no more than 25% of the prescription cost and the plan pays no less than 75% (after the deductible is met).
Under several circumstances, a Part D plan enrollee may not have to pay the normal copayment for a covered drug. For example:
In addition to the costs discussed above, there are restrictions on prescriptions, as well as a coverage gap.
Medicare prohibits Part D plans from covering most medicines within certain drug categories, even if lawfully prescribed by a physician. These include:
Some state Medicaid programs, however, continue covering some of these drugs for people who are also enrolled in a Medicare Part D plan.
A notorious part of the Part D program has been the coverage gap, popularly referred to as the "donut hole." Before 2020, many plans didn't pay any portion of your drug cost while you were in the donut hole; in 2020 and going forward, however, there is little difference in what you pay during the donut hole.
For plans that charge lower copays before you get to the donut hole (when you and your insurance company have paid a total of $4,130 in drug costs), things may change when you get to the donut hole. Your plan may charge you a full 25% of the cost of your prescriptions. Either way, your plan must begin to pay 95% of all further costs when total expenditures reach a "catastrophic" level ($6,550 in 2021).
You enroll in a Part D plan by signing up directly with the plan you want to join. If you don't enroll in a plan when you are first eligible for it, your premiums will be higher when you do finally enroll. (Medicare charges an additional 1% premium for each month you delay enrolling). So carefully consider when you will enroll in a Part D plan. Before you choose a specific plan, research several. (For help choosing a plan, read Nolo's article Medicare Part D: Choosing a Prescription Drug Plan.)