Medicare Part D Program Overview and History
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 established the Medicare Part D plan. It was put into effect in 2006. Medicare Part D offers voluntary drug benefits for seniors and people with disabilities through the use of private healthcare plans approved under strict guidelines set by the federal government.
The purpose behind Medicare Part D is to help make prescription drugs more affordable for Medicare beneficiaries. Plans may provide coverage in the form of standalone Part D plans that cover just prescriptions, or they may be part of a plan that provides both Medicare health and prescription coverage, which is known as a Medicare Advantage Prescription Drug plan (MAPD).
As of 2024, about 54.3 million Medicare enrollees have prescription drug coverage through standalone Part D plans (23.1 million) or Medicare Advantage plans that include Part D (31.2 million).
The Cost of Medicare Part D Prescription or Medicare Advantage Plans
How much you pay for Part D drug coverage or an MAPD depends on where you live, the plan itself, and other factors specific to your situation.
In 2025, over 99% of Medicare enrollees will have access to a Medicare Advantage plan with a $0 premium according to our analysis of data from the Centers for Medicare & Medicaid Services (CMS). The average premium is about $21 a month in 2025. For Part D, the lowest premium averages to about $1.33 a month.
But these are averages, and where you live and the plans available to you will vary widely. That’s why it’s important to compare local Part D plans to get a better sense of your premiums and out-of-pocket costs.
Premium or not, your Part D or Medicare Advantage plan may require you to meet a deductible before benefits start. That means you’ll pay for 100% of the cost of your medications or care before hitting the deductible. In 2025, no standalone Part D plan can have a higher deductible than $590. Some plans may have lower deductibles than the maximum.
Plans with lower deductibles may charge higher premiums, and vice versa. But it’s not a guarantee. Premiums, deductibles, and other out-of-pocket costs are based on a variety of factors, so look carefully when you’re comparing plans to make sure you’re getting the right balance between cost and coverage.
What does your Medicare Part D plan cover?
The prescription drugs that your Medicare Part D plan covers will vary from plan to plan. That is why you will almost always be provided with a list of drugs and the amount that’s covered by your plan. This list is called a formulary.
It’s vital that you check with each Part D plan, as one plan may cover more than another plan. Some plans may not cover the prescriptions you need at all.
When the time comes to use your coverage, you may find that your plan pays for a portion of your prescription costs, while you need to pay for a certain portion of the rest. The amount of money that you are required to pay for your plan’s coinsurance or copayment will also vary from plan to plan. This makes it important to understand what your plan covers after the set initial deductible amount is fulfilled.
A condensed summary of how a Medicare Part D plan works
Medicare Part D prescription drug and Medicare Advantage plans will be made available in your resident state each year. Drug plan premiums vary widely depending on plan type and insurer, among other factors. To find out more about the specifics, such as the plan features and premium costs, you will need to look for an overview of Medicare Part D plan coverage as it applies to your individual state.
Costs vary with Part D plans, but Medicare does put a limit on how much insurers can charge for annual deductibles each year. In 2024, the maximum annual deductible for Part D is $545. That increases to $590 in 2025. It’s up to the insurer to decide the deductible amount, up to the maximum allowed. As discussed earlier, many plans have no annual deductible policies in plan, with coverage that kicks in as soon as you purchase your first prescription. But this is not always the case, which makes it all the more important to look over what your Part D plan covers.
In almost all Part D plans, you will find that prescription drugs are arranged in logical groups that have a fixed copayment amount based upon the group. This fixed-dollar amount will help you determine how much your prescription drugs cost you.
Coverage Phases Under Medicare Part D
Medicare Part D works under “phases” of coverage, meaning what you pay out of pocket depends on the phase you’re in under your plan.
Before 2024, Medicare Part D had four coverage phases: deductible, initial coverage, coverage gap (“donut hole”), and catastrophic. Out-of-pocket costs varied at each phase. In 2024, the catastrophic phase was effectively eliminated since enrollees no longer faced any coinsurance once they reached a set amount of spending.
Starting in 2025, those phases change again thanks to a new out-of-pocket spending cap.
If your plan has a deductible, then your benefits will kick in after you’ve paid that amount first. Deductibles vary from plan to plan, but they do have to stay under a maximum set by the federal government. In 2024, no Part D plan deductible can be higher than $545 for the year.
After you meet your plan’s deductible, you’ll pay for your prescription drugs according to the terms of the plan up until you reach the out-of-pocket cap of $2,000 for the year. This is new in 2025.
Once you reach this spending threshold, your drug plan will cover any remaining covered costs for the rest of the year. The newly set out-of-pocket maximum may rise in future years, but for 2025, it’s $2,000.
And, also new as of 2025, Part D enrollees will now be able to spread their out-of-pocket costs throughout the year in monthly payments instead of paying all at once at the pharmacy counter.
Additional Part D Points
Medicare Part D plans may provide you with additional benefits dependent upon your income levels. You will need to contact your Part D plan to learn about “Extra Help” programs if you are in financial need, as a number of low-income subsidies and middle-income help programs are available.
Many states offer additional help for individuals insured under Part D plans who cannot afford their medicine. You may find that as time goes on, your Part D plan’s premium increases annually. Prescription drug lists or formularies may change with 60 days of notice of being issued to you.
Who Oversees Medicare Part D
The Centers for Medicare and Medicaid Services (CMS) is responsible for overseeing all parts of the Medicare Part D prescription medicine program. It is only under the CMS’s supervision that private health insurance carriers can implement their Medicare Part D plans on a state-by-state basis across the country.
According to our analysis of state data from CMS, there’s an average of 15 standalone Part D plans available nationwide in 2025, with a range of 12 to 18 depending on the state. This doesn’t include Medicare Advantage plans with Part D coverage included.
A Brief History of the Medicare Part D Plan
Medicare Part D was established by the Medicare Prescription Drug, Improvement and Modernization Act of 2003. It was introduced into the House of Representatives on June 25, 2003, and sponsored by Speaker Dennis Hastert.
The bill itself took until November 25, 2003, to be passed by the House after several months of a deadlocked vote. On December 8, 2003, President George W. Bush signed the bill into law.
The initial purpose of Medicare Part D in the bill was to allow people in need to acquire voluntary and additional coverage.
The coverage gap’s effect on people insured under Part D plans has been substantially diminished since the Patient Protection and Affordable Care Act of 2010 (ACA or Obamacare) was put into place. Obamacare lessened the burden on people who get stuck in the donut hole by giving them discounts on their medication.
The initial purpose of Medicare Part D in the bill was to allow people in need to acquire voluntary and additional coverage. But one aspect of Part D made getting affordable drugs more challenging for certain people – those who fell into the so-called coverage gap (or “donut hole”).
We talked about coverage phases earlier. In its initial design, Part D included a built-in “coverage gap,” also known as the donut hole, that forced enrollees to pay for their prescriptions 100% out of pocket once they hit a certain threshold under their plan. That changed thanks to the Affordable Care Act, which gradually eliminated the coverage gap by having people pay 25% of the cost of medications while the drug plan covered the rest.But 25% can be a lot of money, particularly for specialty or brand name drugs. Thanks to the Inflation Reduction Act of 2022, the coverage gap is actually closing in 2025, with a new out-of-pocket cap on expenses for the year.
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