What Is Medicare Part D?

Medicare Part D is a prescription drug benefit program offered by the United States government. It forms part of the broader Medicare system, and was created through the Medicare Modernization Act of 2003.

Key Takeaways

  • Medicare Part D is a part of the overall Medicare program which provides enhanced prescription drug coverage.
  • Those who opt in to the program must purchase their insurance from registered private providers.
  • Those who already receive prescription drug coverage from other sources may be better off keeping their current coverage rather than opting in to Medicare Part D.

How Medicare Part D Works

Medicare Part D is one component of the overall Medicare program, which is a national health insurance program that insures approximately 60 million individuals. Whereas Medicare extends to a wide variety of medical treatment, Part D is focused specifically on making drug prices more affordable for American senior citizens. Although it was enacted into law in 2003, it began providing coverage to users on Jan. 1, 2006.

Those who are already covered by Medicare generally have the option of opting in to Medicare Part D. If they do so, they will be charged the same kinds of costs found with standard insurance plans, such as monthly premiums, annual deductibles, and various copays. In exchange, they can receive additional coverage for prescription drugs as compared to what is already offered by the broader Medicare program. For this reason, different individuals are free to choose whether subscribing to Medicare Part D makes economic sense, given their health needs and financial circumstances.

Generally, participants would opt to enroll in Medicare Part D when they first become eligible for the program. Otherwise, they may incur a late enrollment penalty unless they meet certain criteria, such as having other creditable prescription drug coverage. The government categorizes creditable prescription drug coverage as that which is expected to pay at least as much as Medicare's standard prescription drug coverage. For this reason, those who are already covered by creditable plans are unlikely to opt in to Medicare Part D.

Additionally, most Medicare Advantage Plans also include Medicare Part D coverage, in addition to benefits for vision, hearing, and dental. As such, one of the best Medicare Advantage Plans can serve as a viable alternative for those uninterested in purchasing Medicare Part D to supplement their existing Medicare policy.

Real World Example of Medicare Part D

Daniel is a veteran who is considering whether to opt in to Medicare Part D. As a senior citizen, Daniel is already covered by Medical care for various medical expenses. However, some of his prescription medications are not covered by Medicare, causing him to look for additional coverage.

In researching his options, Daniel examines several plans offered by private insurers under the Medicare Part D program. In doing so, he realizes that because of his prior military service, he is already entitled to prescription drug coverage through the Veterans Affairs (VA) program. When comparing this VA plan against the terms and conditions offered by private insurers under Medicare Part D, he concludes that his best option is to rely on his VA benefits.

For this reason, Daniel decides to not opt in to Medicare Part D. Because his VA plan is recognized by the government as a form of creditable prescription drug coverage, he will not be charged a penalty for failing to opt in.