Medicare Part D: Coverage, Costs and Enrollment

Medicare, the federal health insurance program designed primarily for adults age 65 and older, is an alphabet soup of parts. Medicare Part A and Part B, also known as “original Medicare,” are standard coverage, but what about Part D, the prescription drug coverage portion?

If you’re trying to determine whether it makes sense for you to add Part D to your Medicare coverage plan, read on for more information about what it is, how much it costs and what it can do for you.

What Is Medicare Part D?

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Medicare Part D is a voluntary benefit offered by private insurance companies to cover some or all of the cost of many prescription drugs.

“Original Medicare covers some drugs that might be administered in a hospital or doctor’s office setting, but Part D covers the kinds of drugs you might pick up from the pharmacy,” explains Whitney Stidom, vice president of sales enablement with eHealth Inc., a health insurance broker and online resource provider headquartered in Santa Clara, California. If you’re signed up for a Medicare supplement plan, that also works alongside your Part D prescription drug plan.

[READ: How Medicare Beneficiaries Can Save Money on Prescription Drugs]

How Much Does Medicare Part D Cost?

Medicare Part D plans typically include several costs:

Monthly premiums

Premiums

are the monthly payments you must make to remain eligible for benefits, whether you use prescription medications or not. The premium you pay for this coverage depends on the specifics of the plan you select.

KFF, an independent health policy research, polling and news organization, reports that average monthly premiums for the 12 national stand-alone prescription drug plans in 2025 are expected to range between $3 and $128 with a national monthly average of $45. This list includes some of the biggest companies that offer Part D plans, including plans from Humana, Cigna, AARP, Centene, and CVS Health-Aetna.

According to an eHealth report, the average premium paid by beneficiaries selecting a stand-alone Part D plan for 2024 was $29 per month, down 9% from the year prior.

An annual deductible

Deductibles are set dollar amounts you must spend before insurance benefits kick in. Not all plans have a deductible. For those that do, the deductible amounts vary. eHealth reports the average deductible for Part D plans increased 14% from $389 to $445 in 2024. But in 2025, no plan’s deductible can be higher than $590.

KFF reports that 60% of Medicare Advantage drug plan enrollees will have a deductible in 2025. Check your plan’s details for more information about whether you’ll have to meet a deductible and how much it is.

Copayments

A copayment is a fixed dollar amount you must pay at the pharmacy each time you fill a prescription. Some generic drugs may have no or a very low copay — often less than $5 — while newer or brand-name medications tend to have much higher copays. Copayment costs vary depending on the plan and the specific drug. KFF reports that in 2025, the median copayment cost will range from $0 for generic medications to a median of $47 for some preferred brand medications.

Coinsurance

During the initial coverage stage (more on that below), you’ll pay a coinsurance fee, calculated as a percentage, for your generic and brand-name drugs. This out-of-pocket spending is limited to $2,000 beginning in 2025. KFF reports that in 2025, the median coinsurance rates will vary between 25% and 43% depending on the drug’s tier and the type of Part D plan you have.

[READ: Get These 9 Screenings to Keep Your Medicare Costs Down]

Medicare Part D Coverage Phases

Most Medicare Part D plans and Medicare Advantage plans that include drug coverage have three stages:

Deductible stage. If your plan has a deductible, you’ll pay out of pocket for medications until you reach the dollar threshold.

Initial coverage stage. Once you’ve met that deductible, your coverage plan kicks in and you’ll start paying 25% of the cost as coinsurance for your generic and brand-name drugs until your out-of-pocket spending on drugs covered by your Part D plan reaches $2,000 (more on that below). This includes certain payments made on your behalf, such as those from the Extra Help program.

Catastrophic coverage stage. If your out-of-pocket spending during the initial coverage stage hits $2,000, you’ll automatically get catastrophic coverage. This means you’ll no longer have to pay anything out of pocket for covered Part D drugs for the rest of the calendar year.

Federal legislation that went into effect on January 1, 2025, eliminated the so-called Medicare donut hole, which was a coverage gap that used to begin after the initial coverage period.

[READ: 7 Reasons to Switch Medicare Part D Plans]

What Is the Medicare Part D Cap?

Also as of January 2025, Medicare Part D beneficiaries now have an upper limit on how much they’ll need to shell out for prescription medications. Also known as the Medicare Part D cap, this rule caps or limits expenditures for prescription medications at $2,000 in a calendar year.

That means that if your out-of-pocket spending on medications exceeds that number, you’ll tip into catastrophic coverage and no longer have to make copayments for your prescriptions.

The same law also capped the cost of insulin at $35 per month and eliminated the deductible requirement for Part D-covered insulin. For people who get three months of insulin at a time, the cost can’t exceed $105.

The law also expanded the Extra Help program, which helps low-income individuals afford their prescription medications. It’s intended to cover people who earn less than 150% of the federal poverty level. If you qualify for Extra Help, you’ll typically pay no more than $4.50 for each generic drug and $11.20 for each brand-name drug you use.

What Does Medicare Part D Cover?

Medicare Part D covers a set list of prescription drugs. This list, called a formulary, can differ from year to year and depends on the specifics of your Medicare plan selections.

Both brand-name and generic medications are covered, and the formulary usually covers at least two drugs among the most commonly prescribed categories and classes to help ensure that people with various medical conditions can get the medications they need at a reasonable cost.

If the formulary doesn’t cover a certain drug that a beneficiary needs, there’s often a similar or generic version of that medication available. If there is no analogous drug in your formulary, you or your doctor can request an exception by submitting documentation of your need along with additional information to Medicare.

Your copays can fluctuate as prices and benefits change, so be sure to check the list of what’s covered and what your copayment responsibilities will be during each annual enrollment period.

Medicare Part D Tiers

Many Medicare Part D plans classify drugs according to a tiered pricing system to help lower costs. The lower the tier number, the less the medication will cost.

These tiers vary from plan to plan, but a typical plan usually includes:

Tier 1: Most generic prescription drugs that have the lowest copayment price

Tier 2: Preferred, brand-name prescription drugs that have a medium-level copayment

Tier 3: Non-preferred, brand-name prescriptions that have a higher copayment

Specialty tier: Very high-cost prescription drugs that have the highest copayment prices

If your prescriber believes you need a drug in a higher tier when there is a similar or generic version of that medication in a lower tier, you or they can ask for an exception to get a lower coinsurance or copayment price for that higher-tier drug.

Who Needs Medicare Part D?

According to data from the Centers for Medicare and Medicaid Services (CMS), about 68 million people were enrolled in Medicare as of September 2024. Of those, more than 80% had Medicare Part D coverage.

Not every Medicare enrollee takes medications daily, but most do. A 2024 report from the Centers for Disease Control and Prevention found that from 2021 to 2022, 88.6% of older adults took prescription medication. And many seniors use multiple prescription drugs on a regular basis.

Individuals with diabetes and other chronic health conditions that require the use of a prescription medication usually benefit from having Medicare Part D coverage to help defray the cost.

Generally, Stidom urges all Medicare enrollees to secure Part D coverage.

“Everyone on Medicare needs prescription drug coverage,” she says. “It’s no secret that prescription drugs can be costly, especially without insurance. As a Medicare beneficiary, enrolling in drug coverage is one of the best things you can do to shield yourself from medical expenses.”

Are Medicare Part D Premiums Based on Income?

Medicare’s income-related monthly adjustment amount (IRMAA) is an income-based surcharge that you may have to pay in addition to your premium for Medicare Part B and Part D coverage. This extra fee is based on your modified adjusted gross income, or MAGI. That figure is calculated from your tax filings in the two years prior to your Medicare enrollment date.

Medicare’s IRMAA can be tricky to parse. Here’s what it means, who qualifies and how it affects your coverage and costs.

If your calculated MAGI meets or exceeds the income thresholds set by CMS, you’ll have to pay an additional fee for your Part B and Part D coverage. In 2025, that threshold is $106,000 for individual filers and $212,000 for joint tax return filers. These fees are used to fund the Medicare Trust Fund.

For Part D plans, the additional IRMAA monthly fee can range quite a bit. Individuals in the lowest bracket — those with a MAGI of greater than $106,000 and less than or equal to $133,000 — will need to pay an additional $13.70 per month for Part D coverage. For individuals in the highest bracket — those whose MAGI is equal to or greater than $500,000 — the monthly fee is $85.80.

If you experience a major life-changing event, such as the death of a spouse, divorce or loss of employment that has reduced your income during your coverage year, you can request a reduction in your IRMAA. Whether you pay the IRMAA can also vary from year to year depending on income fluctuations and adjustments to the MAGI threshold levels.

What about the Part D late enrollment penalty?

It’s important to stay on top of your Medicare elections, as you could end up having to pay a late enrollment penalty for Medicare Part D coverage in some circumstances.

This can add up over time, says Adria Goldman Gross, a medical bill advocate with MedWise Insurance Advocacy, a division of MedWise Billing Inc., in Monroe, New York, and co-author of “Solved! Curing Your Medical Insurance Problems.”

“If you have late enrollment with Part D, you will have to pay 1% for each month,” she says.

So, if you’re a year late in signing up, you’ll be hit with a 12% penalty. If you’re two years late, that adds up to a 24% penalty.

This penalty kicks in after just 63 days. That means if you went without creditable prescription drug coverage for a period of 63 days or longer at any time after you first became eligible for Medicare, you’ll likely have to pay a late-enrollment penalty, Stidom adds.

However, you usually do not have to pay the penalty if you had drug coverage through an employer, a government program or through Medicare Advantage before enrolling in a Part D plan.

Gross notes that you have the right to appeal a late enrollment penalty if you feel there’s been an error.

“Sometimes there is incorrect information where your employer has you on a commercial health insurance plan even though you’re over the age of 65. If this happens to you, contact the Social Security Administration or your Medicare plan to begin the appeals process,” she says.

How to avoid the Part D late enrollment penalty

There are three main ways to avoid the Part D late enrollment penalty:

Enroll in Medicare Part D coverage when you first become eligible. Even if you don’t take any medications during your initial enrollment period — the seven-month period around your 65th birthday when you first become eligible for Medicare — adding the benefit means you won’t get hit with a late enrollment penalty later if you begin taking prescription medications. These plans may not elevate your monthly premiums significantly, and it’s a good way to help offset future anticipated health care costs with a little up-front investment.

Enroll in Medicare Part D immediately after you lose other creditable coverage. If you’re currently receiving pharmacy benefits from a former employer, union, the Department of Veterans Affairs, TRICARE, the Indian Health Service or an individual health insurance coverage plan, you don’t need to enroll in Part D during your initial eligibility period. Ending that coverage, however, triggers a special enrollment period when you can add Part D coverage.

Keep good records of your creditable drug coverage. To avoid being hit with a late enrollment penalty later, you’ll need to prove that you had creditable drug coverage from another source. Keep good records of that coverage so you’ll have the documentation necessary to show Medicare.

How to Compare Part D Plans

KFF reports

that in 2025, the average Medicare beneficiary has a choice of 48 Medicare drug plans — a mix of 14 stand-alone prescription drug plans and 34 Medicare Advantage drug plans. This means you have a lot of options and need to compare what’s available in your area to find the best option for your needs.

When comparing Part D Plans:

— Start by making a list of all your medications.

— Check the formularies of any plans you’re considering to ensure your medications are listed.

— Check the tier levels and where your medications fall on those schedules.

— Add up the costs of those medications, and compare it to each plan’s deductible.

If your anticipated medication costs won’t exceed the deductible advertised, check for other plans that have no or lower deductibles that will provide coverage sooner.

Stidom also recommends talking with licensed agents or licensed online brokers to help you understand which plan meets your needs and budget.

You can also refine your search with U.S. News’ Best Medicare Part D rankings.

Save Money With Medicare Part D

Medicare Part D is an important component of health insurance that helps defray the cost of prescription drugs. It’s an optional program, but even if you’re not currently taking medications, you should consider adding it to your Medicare plan. Doing so can help you avoid excessive medication costs if you get sick or develop a chronic condition. You may also be able to avoid a penalty fee if you decide later on that you do want this coverage.

There are many plans and options available to Medicare-eligible individuals. Do some research, and talk to a trusted adviser to figure out what’s best for you and how much it will cost.

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Medicare Part D: Coverage, Costs and Enrollment originally appeared on usnews.com

Update 01/17/25: This story was previously published at an earlier date and has been updated with new information.

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