Some private insurance companies offer Medicare Prescription Drug (Part D) coverage as a standalone plan to help you pay for your medications. This type of coverage can only be purchased if you choose Original Medicare and need prescription drug coverage. Note you only have 63 days past your Initial Enrollment Period (IEP) to sign up for Part D coverage to avoid lifetime liability to pay a Part D Late Enrollment Penalty. The only exception is if you’re staying on an employer health insurance plan that provides creditable drug coverage or if you have creditable drug coverage through TRICARE or VA Health Care.

A Medicare Prescription Drug (Part D) also an option if you’re staying on an employer plan that doesn’t offer creditable drug coverage. Creditable Drug Coverage is prescription drug coverage that is at least as good as Medicare’s standard prescription drug coverage. If you plan to stay on an employer plan after your 65th birthday, talk to your benefits administrator to confirm your plan has creditable drug coverage so you don’t end up paying a Part D Late Enrollment Penalty.

Learn how to avoid the late enrollment penalty.

There are two basic ways to get Part D prescription drug coverage: 

Purchase a standalone Medicare Part D plan. You must have both Parts A and B (Original Medicare) to join a Part D plan.

  • You’ll need both Part A and Part B to qualify for the full benefits that cover certain dialysis and kidney transplant services.

 
 

Enroll in a Medicare Advantage (Part C) plan that includes Part D Prescription Drug coverage.

  • If you choose to add a standalone Part D plan to your Original Medicare coverage, you’ll pay a monthly Part D plan premium to the insurance company.

  • If you choose to join a Medicare Advantage plan that has prescription drug coverage, you won’t pay an extra premium for Part D — those benefits are included in your plan.

 
 

All Part D plans including Medicare Advantage plans with Part D benefits cover a wide range of prescription drugs. However, coverage and cost vary from plan to plan.

  • Each plan has a formulary — a list of the specific prescription drugs the plan covers.

  • Many plan formularies also have tiers that place covered prescription drugs into different cost levels.

  • Prescription drugs in a lower tier will generally cost you less than those in a higher tier.

 
 
 
Medicare Part D Drug Formulary Tiers
 
 

Though Medicare Part D is available as a standalone plan, many Medicare Advantage plans include Part D in their coverage. Though a vital coverage for many, Medicare Part D isn’t without its complexities. To help you navigate the intricacies of your available drug coverage options, we recommend reading through the resources below.

What Isn't Covered by Medicare Part D?

Just as with Original Medicare, it’s just as important to understand what isn’t covered under Part D as it is to understand what is covered. Below are drugs that are not included under Medicare Part D coverage.

  • Drugs that are not listed on the plan formulary

  • Prescription vitamins and mineral products

  • Over-the-counter medications

  • Drugs that may be covered under Part A and Part B

How Do the Phases of Part D Work?

Another complexity to Part D coverage are the different phases that make up the coverage stage cycle. Throughout the year, there are four drug stages you can reach based on how much you’ve paid for drugs during the year. The stage you are in affects the amount you pay for your drug.

People who take few prescriptions may remain in the deductible stage or move to the initial coverage stage. People who spend a lot on their medications, either by having several prescriptions or using expensive drugs may move into the coverage gap or catastrophic stage. This cycle starts over each year on January 1.

 
 
Medicare Part D Drug Coverage Phases

Annual Deductible

If your plan has a drug deductible, you’ll pay the full cost of drugs up to the deductible amount first. Depending on your plan, drug deductibles can apply to Tier 3, 4 or 5 medications.

Initial Coverage

Once you’ve met your drug deductible, you move into the initial coverage stage. During this stage, you pay a co-payment (set fee) or co-insurance (percentage of the cost) out-of-pocket and the plan pays the rest. You stay in this stage until your total drug costs, which includes the amount you and the plan have paid for your covered prescription drugs, reach the coverage gap amount. This amount is determined by Medicare each year.

Note-> Your plan premium payments are not included in your total drug cost amount.

Coverage Gap - Donut Hole

Ah, the famous Medicare Donut Hole. Unfortunately, this isn’t the good kind of donut. While you’re in the coverage gap (also known as the Donut Hole), you pay a larger share of the cost for your drugs. You stay in the coverage gap stage until your total drug costs reach a certain amount. This amount is set by Medicare each year.

While in the coverage gap, your total drug costs include the amount you and the plan have paid for your covered prescription drugs, plus the discount amount drug manufacturers provide on brand name drugs.

Catastrophic Coverage

Once your total out-of-pocket costs reach a certain amount ever year, you pay a small co-payment or co-insurance amount for drugs for the rest of the year. Again, the cycle resets on January 1, so you will only remain in the catastrophic coverage stage through December 31 of any given year.