Medicare Part D

Medicare Part D prescription drug plans help lower prescription drug costs for those on Medicare. With this coverage, policyholders are responsible for copayments and deductibles instead of the total retail price of their drugs.

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Prescription drug coverage is one of the most challenging parts of Medicare to understand. Each plan offers different levels of coverage and involves varying deductibles, premiums, and copayments.

Yet, the basic concept behind all Medicare Part D prescription drug plans is the same. Below, we review everything you need to know about Medicare Part D.

What is Medicare Part D and How Does it Work?Medicare Part D Coverage

The only prescription drug coverage you can pair with Original Medicare (Part A and Part B) is Medicare Part D. This coverage is not the same as Medigap Plan D – a Medicare Supplement plan covering the holes in Original Medicare.
Anyone with at least Medicare Part A inpatient coverage can pick up a Medicare Part D policy. Thus, you can still enroll in Medicare Part D if you have Medicare Part A but do not yet have Medicare Part B outpatient coverage.

Medicare does not directly administer Medicare Part D plans. Instead, private insurance companies Medicare approves offer and manage these plans. Companies like SilverScript, Humana, Mutual of Omaha, and others provide Medicare Part D plan options.

Medicare Part D Plans in 2023

Each state offers a choice of between 19 and 27 Medicare Part D plans in which beneficiaries can enroll. Remember that although the same policy may be available within the same state or even across the country, plan details can vary from one ZIP Code to the next.

How Much Does Medicare Part D Cost?

Each year, Medicare Part D costs change. The average monthly premium for Medicare Part D coverage in 2023 is $31.50. However, premiums vary by policy.

Most beneficiaries pay the same monthly premium for coverage through the same policy, but those with higher incomes are subject to a monthly surcharge. This Income-Related Monthly Adjustment Amount (IRMAA) also applies to Medicare Part B medical insurance, so if you need to pay an IRMAA for Medicare Part B, it will also pertain to Part D.

On the other hand, the government assists people who need help paying for Medicare Part D. Depending on where you live, additional assistance may be available from state or federal agencies. You must meet income and asset requirements to qualify.

Medicare Part D Costs Explained

The monthly premium is not the only out-of-pocket cost for Medicare Part D plans. Other expenses for which you are responsible include the initial deductible, initial coverage limit, out-of-pocket costs, and the coverage gap (donut hole).

In 2022, the Medicare Part D deductible cannot exceed $505 for any plan or carrier. Additionally, the average Medicare Part D monthly premium is $31.50.

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Remember, these plans are available through private insurers. These companies set their own premiums, so it pays to compare plans in your area to make sure that you are choosing the right plan for your prescription drug needs.

Further, medications that fall under a higher tier tend to come with higher coinsurance costs and co-payments compared to lower tiers. Medicare prescription drug policies and Medicare Advantage drug plans vary in terms of the medications they cover as well as the costs the beneficiary pays.

Your Medicare Part D Costs will depend on:

  • The medications you take and how frequently you take them
  • Whether the pharmacy you go to is within your plan’s network
  • If your medications are on your Part D plan’s formulary
  • Whether you choose a stand-alone Part D Medicare prescription drug plan or a Medicare Advantage Prescription Drug Plan
  • If you receive extra help paying your Part D Medicare costs

One major cost you should consider is the monthly premium. Stand-alone Part D policies and Medicare Advantage plans have a monthly premium. On top of the monthly premiums, you may have to pay an annual deductible and co-payments/coinsurance for your medications.

How Does IRMAA Affect Medicare Part D?

The Income-Related Monthly Adjustment Amount (IRMAA) is an additional cost on top of your Medicare Part D premium that affects those with high incomes. This helps offset the costs for low-earning Medicare beneficiaries and keeps costs affordable for everyone on Medicare regardless of income.

The chart below shows the additional cost you would pay based on your modified adjusted gross income (MAGI) from two years prior to the current year.

2021 annual income: Individual 2021 annual income: Filing Jointly 2021 annual income: Filing separately Medicare Part D Premium 2023
$0 – $97,000 $0 – $194,000 $0 – $97,000 Plan Premium
$97,001 – $123,000 $194,001 – $246,000 Plan Premium + $12.20
$123,001 – $153,000 $246,001 – $306,000 Plan Premium + $31.50
$153,001 – $183,000 $206,001 – $366,000 Plan Premium + $50.70
$183,001 – $500,000 $366,001 – $750,000 $97,001- $403,000 Plan Premium + $70.00
> $500,001 + $750,001 + $409,003 + Plan Premium + $76.40

Medicare Part D Coverage Phases

Your Medicare Part D costs for prescription drugs may change during the year. This fluctuation in out-of-pocket costs happens because Medicare Part D coverage has four different phases.

Every Medicare Part D plan follows the same coverage phases, meaning it is crucial to know how they work, particularly if you require high-cost drugs.

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The four coverage phases are:

  1. Deductible (if applicable; varies by plan)
  2. Initial Coverage
  3. Coverage Gap (Donut Hole)* 
  4. Catastrophic Coverage*

*The Coverage Gap phase will be removed in 2025, and the Catastrophic Coverage phase will be removed in 2024 due to the passage of the Inflation Reduction Act

Medicare Part D Coverage Phases Chart

Phase 1: Deductible During the deductible phase, you are responsible for the full cost of your prescription drugs until you meet the Medicare Part D deductible.

After you reach your plan’s deductible, Medicare Part D will then cover the cost of your medications. Although deductible expenses will vary between plans, no plan’s deductible may exceed $505 in 2023. However, some plans have deductibles as low as $0.

Phase 2: Initial Coverage Once you meet your annual deductible, your plan will pay its predetermined share of the drug cost, and you will be responsible for the remaining co-payments or co-insurance.

The length of your initial coverage phase depends on drug costs and the benefits your plan offers. In 2023, the initial coverage phase ends once your total drug cost is $4,660.

It is important to note that total drug cost is the amount both you and your plan pay for medications, not just your out-of-pocket costs.

Phase 3: Coverage Gap (Donut Hole) During the coverage gap or donut hole phase, most generic and brand-name drugs receive a 75% discount by the drug manufacturer and the federal government.

That leaves the beneficiary responsible for only 25% of the cost, keeping prescriptions affordable.

This coverage phase lasts until you reach the Medicare Part D True Out-of-Pocket (TrOOP) limit of $7,400.

Phase 4: Catastrophic Coverage Once you exceed the Medicare Part D TrOOP limit, your plan will cover most of your prescription drug costs.

During this phase, your out-of-pocket cost is capped at the greater amount between 5% of the retail cost of the drug OR $4.15 for generic medications and $10.35 for brand-name medications.

Some out-of-pocket expenses that can bring you to the catastrophic coverage phase are:

  • Your plan’s deductible
  • The amount you pay during your initial coverage phase
  • The cost of brand-name drugs purchased during your coverage gap phase
  • Expenses paid by any person on your behalf
  • Fees are paid for by State Pharmaceutical Assistance Programs, AIDS Drug Assistance Programs, and the Indian Health Service

What is TrOOP in Medicare Part D?

Medicare tracks true out-of-pocket costs (TrOOP) annually. Because Medicare tracks spending, you get protection from paying more than necessary. The Medicare Part D TrOOP does not include monthly premiums, out-of-network pharmacies, non-covered drug costs, and the 75% discount on generic drugs.

So, if you reach the deductible before moving out of state, you do not need to meet another deductible in your new area. The same is true for the coverage gap and the catastrophic phase.

No matter where you move, Medicare will be aware of your current coverage phase.

During the Annual Election Period, you can make changes to your Medicare Part D plan without penalty. Additionally, if you ever qualify for a Special Enrollment Period, you can also change plans without penalty during that personalized window.

Medicare Part D Late Enrollment Penalty

Although no part of Medicare is mandatory, there are consequences for delaying prescription drug coverage. If you defer enrollment without creditable drug coverage (meaning as good as Medicare Part D), you will incur a penalty in addition to your monthly Medicare Part D premium. Additionally, the penalty never goes away as long as you have Medicare Part D coverage.

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Plan Changes on Medicare Part D

Each year, your Medicare Part D plan is subject to change. You find out about the changes for the upcoming year each fall when you receive an Annual Notice of Change letter from your carrier. These changes can include new out-of-pocket costs, adjustments to pharmacy networks, and removal of drugs from the formulary.

Formularies are lists of prescription drugs for which plans include coverage. Every Medicare Part D plan has a formulary, and it is essential to make sure yours includes what you need each year.

Once you enroll in a Medicare Part D plan, be aware that the coverage will automatically renew the following year. Therefore, you must ensure your coverage is still what you want for the following year.

You only need to act when you wish to change your drug plan. The Medicare Annual Enrollment Period is your chance to do this each year. It is always recommended to review your drug plan with a licensed agent during this time, as many plans change each year. You may find another plan that provides more comprehensive coverage for your medications.

Medicare Part D Extra Help

Extra Help is a low-income subsidy for Medicare Part D plans. If your monthly income is below the limits set for the year and your assets do not exceed other specified limits, you are eligible for Extra Help with Medicare Part D.

If you are enrolled in state insurance coverage assistance programs such as Medicaid, you are automatically eligible for Extra Help benefits. These benefits include Medicare Part D premium reduction, lower copayments on prescriptions, elimination of the Medicare Part D late enrollment penalty, and allowing the beneficiary to enroll in a new drug plan up to nine months after becoming eligible for Extra Help. Levels of Extra Help vary by need.

How to Explore Medicare Part D Plans

Trying to find the best plan for you can be overwhelming. That is why we are here to help – free of charge. Our licensed agents work hard to help you through this process.

Enrolling in a Medicare Part D prescription drug plan is the best way for beneficiaries to save money on costly medications. We can help you compare plans in your area to ensure you receive the best coverage. Simply complete our online rate form here, or you can give us a call at the number above.

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  1. Drug coverage, Medicare. Accessed June 2022.
  2. How Medicare Prescription Drug Coverage Works with a Medicare Advantage Plan or Medicare Cost Plan, Medicare. Accessed June 2022.

Autumn Oberkehr

Autumn Oberkehr is a Content Strategist at Elite Insurance Partners. With a Bachelor’s degree in journalism from Rutgers University, she has a strong background in SEO, fact-checking research, and health/wellness writing.


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