Medicare Part D, the prescription drug benefit, is the part of Medicare that covers most outpatient prescription drugs. Part D is offered through private companies either as a stand-alone plan, for those enrolled in Original Medicare, or as a set of benefits included with your Medicare Advantage Plan.

All plans must cover a wide range of prescription drugs that people with Medicare take, including most drugs in certain protected classes,” like drugs to treat cancer or HIV/AIDS. " A plan’s list of covered drugs is called a “formulary,” and each plan has its own formulary.

Medicare drug coverage typically places drugs into different levels, called “tiers,” on their formularies. Drugs in each tier have a different cost. For example, a drug in a lower tier will generally cost you less than a drug in a higher tier.

Part D drug coverage is a voluntary benefit; you are not obliged to sign up. You may not need it anyway if you have drug coverage from elsewhere that is “creditable” — meaning Medicare considers it to be the same or better value than Part D. This coverage could come from an employer or union, retiree benefits, COBRA or the Veterans Affairs health program — all of which have an obligation to tell you whether it is creditable. But without such coverage, you need to sign up with a stand-alone Part D drug plan if you want Medicare to help pay for your medications and avoid late penalties. 

Generally, you won’t have to pay a Part D penalty if:

-You have creditable drug coverage (coverage that’s similar in value to Part D) OR

-You qualify for Extra Help

You’ll pay an extra 1% for each month (that’s 12% a year) if you:

-Don’t join a Medicare drug plan when you first get Medicare.

-Go 63 days or more without creditable drug coverage).

You may also pay a higher premium depending on your income.

After you join a Medicare drug plan, the plan will tell you if you have to pay a penalty and what your premium will be.

Part D plan costs vary by the plan and provider you choose. Each plan negotiates prices with drug manufactures and pharmacies. Your copays and coinsurance rates are based on these prices and on guidelines set by Medicare.

Premium

Stand-alone Part D plans charge a premium, and the amount will vary based on the plan and the provider. Medicare Advantage plans with drug coverage may or may not charge a premium. If they do, generally they charge one premium for all the plan’s benefits — medical, hospital and prescription drugs.

Deductible

Some plans—Part D or Medicare Advantage—may charge a deductible and others don’t. Plans may also have a deductible for certain drugs and not for others. Deductible amounts can vary from plan to plan and from one drug tier to another. However, Medicare does set a maximum deductible amount each year that Part D plans can charge. The 2023 annual deductible limit is $505.

Copay

A copay is generally required each time you fill a prescription for a covered drug. Copay amounts may vary based on a plan’s formulary tiers (the lower the tier, the lower your cost) as well as which pharmacy you use (in-network vs out-of-network). Each plan sets its own copay terms and amounts, and these can vary from plan to plan.

Coinsurance

Some plans may also set coinsurance rates for certain drugs or drug tiers. You’ll want to review the plan’s coinsurance terms carefully to understand how much you will pay and how much the plan will pay.

Some plans have a network of pharmacies for you to choose from, while other plans may offer nationwide coverage. If a plan has a network of pharmacies, your costs may be different if you fill a prescription outside the network.

A note to veterans

People who have benefits through the Veterans Affairs may be able to get prescription drug coverage through the VA and may not need Medicare drug coverage. Talk with your VA benefits administrator before making any decisions.