Prescription drug coverage is available to every senior covered by Medicare insurance. Enacted by law in 2006, coverage is provided by either an insurance company or another private entity that is approved by Medicare.
Every plan is different in both coverage and cost. Individuals with incomes below a particular threshold are eligible for assistance with premiums and drug costs.
Additionally, the Affordable Care Act (ACA) included provisions that effectively eliminated the “donut hole” in 2019.
Enrollment in Part D is done at the same time that seniors enroll in Parts A and B. Failure to enroll in Part D in a timely manner can cause you to incur a penalty later.
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Do I Need to Enroll?
There are three questions to ask when deciding if you need Medicare’s drug coverage:
- Do you currently have coverage through your Medicare Advantage plan?
- What is your monthly income?
- How much do you spend on prescriptions?
Medicare’s basic drug benefit uses the term “creditable” when looking at other plans. Creditable plans have benefits that are at least as good as or better than Medicare’s basic drug benefit. If you currently have coverage through your employer or insurance company, they will send a letter each year advising of the plan’s status as creditable. If the coverage is not creditable, you can enroll in Part D coverage without a penalty.
If you have coverage outside of Medicare, always be sure that taking Medicare coverage will not negate your benefits under your private plan. Some plans are not compatible with Part D. Joining a Part D plan can cause you to lose your benefits and not be able to get them back.
Taking a look at your current prescriptions and their costs, and comparing them to the benefits offered under other plans can also be helpful. Be sure to compare both the drug and the dosage, since these vary by plan, and include the premium when comparing.
Part D Costs
Most Part D plans charge a monthly premium, which varies by coverage. This is in addition to your Part B premium. Those covered by a Medicare Advantage plan (also known as Part C or MA) may have coverage in that plan.
If you need help paying for Part D costs, Medicare offers an “Extra Help” program. This program provides assistance to people with limited income and offers significant savings to those who qualify. For those with Medicare only, the income limit for Extra Help in 2024 is $1,903 a month for individuals and $2,575 a month for couples. This qualifies you for full assistance, which means zero-dollar premiums. There are different income caps for partial assistance.
People on Medicaid who reside in a skilled nursing facility or are receiving Supplemental Security Income automatically qualify for Extra Help. Other people can apply for and receive some assistance in the form of fixed copays for both generic and brand name prescriptions. In the event you do not qualify for Extra Help, you may qualify for aid under your state health insurance assistance program (SHIP), or you can apply for regular Medicare Part D coverage.
Along with the premium, you may have an annual deductible under Part D, which changes each year. In 2024, the most a plan can set as the deductible is $545. Plans can have lower deductibles, but that’s the maximum. In 2025, the maximum deductible is $590.
Also, it’s important to note that Medicare Part D charges higher premiums for people with higher incomes, like Medicare Part B. In fact, Part D uses the same income threshold chart (IRMAA). Check with Social Security for more information if your income bumps you into a higher premium bracket. The threshold for 2024 (based on your 2022 tax return) is $103,000 a year for individuals and $206,000 for couples filing joint returns. In 2025, that threshold increases to $106,000 for individuals and $212,000 for couples.
The “Donut Hole”
The Part D coverage gap, also known as the “donut hole,” is officially closed thanks to a new cap on out-of-pocket spending that takes effect in 2025. In 2025, the cap is $2,000. The information in this section that follows this paragraph is for historical reference only.
Before 2025
The biggest downside to Part D coverage is the gap in coverage commonly called the “donut hole.” This hole is the gap between initial payments under Part D and when benefits resume. During this gap, participants are responsible for paying a larger percentage of their prescription drug costs.
Individuals receiving Extra Care or SHIP assistance or those who have another plan that covers the gap do not have to worry about these additional expenses.
Additionally, if your drug costs do not exceed $4,660 in 2023 ($5,030 in 2024), you will not have a gap in coverage. This limit is known as the coverage limit, and it triggers the donut hole because this is where coverage ends temporarily under Part D. The dollar amount is adjusted annually for inflation.
The Affordable Care Act sought to close this gap by 2020, so important discounts were being offered to offset the cost of prescriptions for people stuck in the gap. Officially, the gap closed a year earlier than planned, in 2019. Now, once you reach the initial coverage limit, you’ll pay 25% of the cost of your prescriptions for both generic and brand name drugs.
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Once your prescription drug spending hits $7,400 in 2023 ($8,000 in 2024), the amount falls under catastrophic coverage. Starting in 2024, once you reach the catastrophic level, you won’t have a copay or coinsurance for covered Part D drugs for the rest of the year.
Choosing a Plan
This can be the most confusing part of the process. Therefore, it is important to make the right choice, since the plan you choose is the one you will be staying with for the entire calendar year. It is also wise to review plans each year, since your needs may change from year to year. You can add, make changes to or drop Part D coverage from October 15 through December 7 each year. To make an informed decision, there are a few things to consider.
- The first step to take is to write down every prescription you take, the dosage and its cost. The out-of-pocket cost of a drug depends on what kind of drug it is (generic or brand name and type), and these costs vary widely. There is a tool on the Medicare website that allows you to enter your ZIP code and the prescription data. The results will provide you with a list of plans with your probable out-of-pocket costs and which drugs will be covered. The list will also show the pharmacies in the network.
- Companies that provide Part D coverage change their plans every year. These changes can affect the premium, out-of-pocket costs, copays and the drugs covered. Some plans offer donut hole coverage for a plan year, then remove it during the next year. The insurer is required to provide an “Annual Notice of Change” outlining the changes to your plan by September 30 to provide you adequate time to look for a new plan.
- There is always the chance that you may not find a plan that covers all of your prescriptions, particularly those that are new or extremely expensive. Speak to your doctor to find out if there are any alternatives that can work for you. If not, your doctor can request an exception in writing to appeal the denial. Companies may make an exception for specific medical conditions.
Deciding to take on Part D coverage is voluntary. In order to make the best decision, you need to take into consideration your health, prescriptions, income and budgetary requirements. The cost of Part D is dependent on a person’s income. So even if a person is considered lower income, they can still get affordable Part D coverage. There are programs in place on both the state and federal level to assist seniors in paying for Part D coverage. It can be a time-consuming process, but Part D coverage is a significant benefit that helps seniors to maintain their healthcare.