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Medicare Part D Enrollment Explained

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 created the Medicare Part D plan, but Part D didn’t get put into effect until 2006. Medicare Part D offers voluntary drug benefits through the use of private healthcare plans approved under strict guidelines set by the federal government.

Original Medicare (Parts A and B together) doesn’t cover prescription drugs. That’s why Part D was created, to help make prescription drugs more affordable for those with Medicare.

As of 2022, about 50 million people are enrolled in Part D drug plans. That includes people in standalone Part D plans as well as those in Medicare Advantage plans with prescription drug coverage.

Here’s how enrollment works with Medicare Part D.

Medicare Part D Enrollment

You’re eligible for Medicare Part D when you first become eligible for Medicare. For many people, this is based on age. Others qualify for Medicare based on disability. Regardless of how you qualify, you can enroll in Part D during certain times:

  • Initial enrollment period. Your initial enrollment period runs for a total of 7 months the year you turn 65: 3 months before your birthday month, your birthday month and the 3 months following your birthday month. So, for instance, if your birthday is January 13th, your IEP runs from October 1st through April 30th. This is the best time to sign up for Medicare and get a Part D plan. That’s because if you wait to enroll in Part D, you may have to pay a penalty for late enrollment in addition to your monthly premium, and that penalty lasts for as long as you have Part D.
  • Open enrollment period. Each year, the Medicare Open Enrollment period, also called the Annual Election Period, allows people with Medicare to make changes to their coverage for the following year. It runs from October 15th through December 7th. Changes take effect on January 1st.  You can go from Original Medicare to Medicare Advantage, change your current Advantage plan to another one, or add or change Part D coverage, among other things. If this is the first time you’re enrolling in Part D and you didn’t have creditable coverage in the meantime, you may owe a penalty for late enrollment.
  • A special signup period during spring. If you don’t use your IEP to get Medicare and instead wait until the General Enrollment Period (January 1st through March 31st) to enroll in only Part B, you can add Part D drug coverage during a special spring signup period. It runs from April 1st through June 30th. Coverage will start on July 1st in this case (and again, you may owe a penalty fee for late enrollment).

If you wait to get Medicare, most likely because you’re still working when you turn 65 and have job-based health insurance, then you may also be able to enroll later in Part D without facing the penalty for late enrollment. There may also be other times during the year when you can enroll in Part D or change your coverage. You’ll need to contact Medicare for more specific information about a special enrollment period.

Late Enrollment Penalty for Part D

We mentioned the late enrollment penalty for Part D. Medicare requires enrollees to have “creditable coverage,” meaning prescription drug coverage that’s at least as good as what Part D covers, in order for people to avoid the late enrollment penalty if they choose a Part D plan outside of the initial enrollment window.

If at any point after your IEP, you go for 63 days or more in a row without creditable coverage, and then decide to get a Part D plan when an enrollment window opens up, you’ll likely have a penalty fee charged on top of whatever premium the plan charges. That penalty fee lasts for as long as you have Part D — i.e., it’s permanent.

Calculating that penalty involves some complex math. Medicare takes 1% of the “national base beneficiary premium” — which changes each year — and multiplies it by the number of full months you didn’t have Part D coverage (or creditable coverage). That figure is then rounded to the nearest 10 cents and added to your Part D plan’s existing premium. Example:

  • Let’s say your initial enrollment period runs from August 2018 through February 2019. You decide not to enroll in Part D because you don’t need any regular medications and don’t mind paying out of pocket for occasional prescriptions.
  • In 2022, your medical history changes, and you get put on a handful of new medications that start to add up at the pharmacy counter. You decide you need Part D after all, so you enroll during the Open Enrollment Period in October 2022. Your coverage takes effect on January 1, 2023.
  • In total, you went 46 full months (March 2019 to December 2022) without creditable drug coverage or a Part D plan. Your penalty fee will be $15.10 (1% x $32.74 [base premium for 2023] x 46, rounded to the nearest $0.10). This fee is added to whatever your plan already charges, and it lasts for as long as you have Part D.

Because the national base premium changes each year, your penalty fee will likely change each year, too. This is why it’s best to enroll in Part D when you’re first eligible unless you’re sure you have creditable coverage in place already.

Part D Costs

Because Part D is sold by private, individual companies, costs vary widely across the country. Availability and cost will depend on your state and who’s selling the plans. According to our analysis of data from the Centers for Medicare and Medicaid Services (CMS), which administers the Medicare program, there’s an average of 24 standalone Part D plans in each state available in 2023, though access to these plans depends on where you live. Some states have more plan options than others. Your zip code also matters.

On average, Part D plans will cost about $31.50 a month in 2023. And if you already have a Part D plan, there’s good news for you, too. Over 99% of people with a Part D plan in 2022 have access to a plan in 2023 that costs less than what they paid this year.

As for Medicare Advantage plans, the costs may differ with these. Advantage plans may charge a separate premium for the Part D coverage portion if they offer it, but they may not. MA plans can roll the monthly premium for medical and drug coverage into one payment. Check these plans carefully to make sure you understand what they charge — and how.

As a general rule for health insurance, both medical and drug coverage, the lower the monthly price tag, the higher the cost sharing. This means that if your private plan has no deductible or a very low one, you may be expected to cover more of the cost of your services from your own pocket. Read over plan documents thoroughly before signing up so you understand your responsibilities upfront.

What Part D Covers

The prescription drugs that your Medicare Part D plan covers will vary from plan to plan. Your plan should outline the kinds of medications it covers and at what cost in its drug formulary. Request a copy of this from the insurer if you can’t readily find the information anywhere.

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.

In addition to covering prescription drugs based on multiple tiers, many Medicare Part D prescription plans offer a separate tier for injectable drugs, like insulin. The cost sharing options for injectable tiers tends to be higher.

How a Medicare Part D Plan Works (A Quick Guide)

The available Part D plans and how much those plans cost depend on where you live. There may be more or less each year, but it’s usually more. Most (but not all) Medicare Advantage plans also include prescription drug coverage. The important thing to remember is that you’re likely to have several options — though, as we said, actual availability depends on where you live.

Remember, too, that costs vary with Part D plans. But Medicare does put a limit on how much insurers can charge for annual deductibles each year. In 2023, the maximum annual deductible for Part D will be $550. It’s up to the insurer to decide the deductible amount, up to the maximum allowed. Some plans may have no annual deductible policies in plan, with coverage that kicks in as soon as you buy 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.

Part D plans have tiers of covered drugs. Each tier includes a group of similar drugs in terms of cost (not necessarily in terms of what the drugs are for). So, for example, tier 1 drugs might be low-cost generics for common medical issues while tier 5 medications could be expensive specialty drugs. Your plan will pay a set amount for each tier. Review the tier structure in detail so you’re not surprised at the pharmacy counter.

The Medicare Part D Donut Hole and Catastrophic Coverage

If your plan has a deductible, then your benefits will kick in after you’ve paid that amount. Your plan will then pay a portion of the costs of your drugs until you reach what’s called the initial coverage limit, which is $4,660 in 2023. At that point, you’ll hit what’s known as the “donut hole” — i.e., the Part D coverage gap — until you reach the out-of-pocket spending limit for the year.

The donut hole is technically closed now as of 2019, thanks to the Affordable Care Act. Now, if you’re stuck in this gap between the initial coverage limit and the catastrophic limit, you’ll pay 25% of the cost of your medications while your plan pays the rest. This can still be a pricey situation if you have expensive drugs, but it’s an improvement over the old system, in which there was no help with the cost and you were stuck paying retail in the meantime.

Once your out-of-pocket expenses reach $7,400 in 2023, you’ll hit the catastrophic coverage phase, also called the out-of-pocket threshold, of your plan. At that point, you pay a low flat fee or a low percentage of your drug costs for the rest of the year.

Additional Part D Points

Medicare Part D plans may provide you with additional benefits depending on your income levels. Contact Medicare or your Part D plan to learn about “Extra Help” programs if you need financial help paying for premiums or paying for the medication itself.

Many states offer additional help for people 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’s 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.

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 get 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. People with Part D got another break in 2014, when other options were made available under the program. This helped lower what they paid out of pocket while in the donut hole.

Finally, copays for drugs are structured based on tier. Insurers tend to set tier 1 and sometimes tier 2 drugs at low or no copays, meaning you may get prescriptions in this category without paying anything at the pharmacy counter.