What Is Medicare Part D?
The term Medicare Part D refers to a prescription drug benefit program that is offered as part of the broader federal Medicare health insurance program. The program is for persons 65 years and older, certain younger people with disabilities, and people with end-stage renal disease. Part D is an optional benefit that is administered by private insurance companies and available to anyone who has Medicare.
- Medicare Part D is a part of the overall Medicare program which provides enhanced prescription drug coverage.
- People who opt in to the program must purchase their insurance from registered private providers.
- Those who already receive prescription drug coverage from another source, provided it is creditable coverage, may be better off keeping their current coverage rather than opting in to Medicare Part D.
How Medicare Part D Works
Medicare offers two ways to get prescription drug coverage—Part D and Medicare Advantage. Medicare Part D is one component of the overall Medicare program, which is a national health insurance program. As of 2021, the program insured an estimated 63.8 million individuals.
While Medicare extends to a wide variety of medical treatments, Part D specifically focuses on making drug prices more affordable for Americans 65 years and older. Although it was enacted into law in 2003, Part D didn't begin providing coverage until Jan. 1, 2006.
People already covered by Medicare can generally opt into Medicare Part D. If you do, you are charged the same kinds of costs found with standard insurance plans, such as monthly premiums, annual deductibles, and various copays. In exchange, you get additional coverage for prescription drugs as compared to what is already offered by the broader Medicare program. That's why it's up to you to choose whether subscribing to Medicare Part D makes economic sense, given your health needs and financial circumstances.
According to the Centers for Medicare & Medicaid Services, Medicare Part D coverage will cost an average of $31.50 in 2023 compared to $32.08 per month in 2022. For those who enrolled in a Medicare Advantage plan, the average premium in 2023 will be $18 per month, compared to $19.52 in 2022.
Keep in mind that the average premium you pay for Medicare Advantage covers the cost of prescription drugs through the Medicare Advantage program. But individual Medicare Advantage plans still charge the standard premium for Medicare Part B.
When To Enroll
Generally, you opt to enroll in Part D when you first become eligible for Medicare. Otherwise, you might incur a late enrollment penalty unless you 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 may not choose to opt into Medicare Part D.
Many Medicare Advantage plans also include Medicare Part D coverage, in addition to benefits for vision, hearing, and dental. Medicare Advantage is a type of Medicare health plan offered by private insurance companies that are Medicare-approved. 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.
As noted above, the average premium in 2023 Medicare Advantage plans, will be $18 per month, compared to $9.52 in 2022.
Medicare prescription drug plans have a coverage gap—a temporary limit on what the drug plan will cover. The coverage gap is often called the "donut hole." It kicks in after you and your insurer have spent a certain amount on medications in combined costs.
Once that sum's been exceeded, you have to pay at least a portion of your drugs out of pocket. But, most plans have limits on the amount you have to pay on your own in a given year, called the out-of-pocket threshold. Once you've exceeded that sum, your coverage kicks in again. Hence, the name "donut hole."
If it sounds a bit illogical—it is. And lawmakers have been trying to fix it. Under the Affordable Care Act (ACA), the donut hole has been closing each year, but it's not completely gone yet. You enter the notorious coverage gap once you reach $4,660 in 2023 ($4,430 in 2022). This requires you to pay up to 25% of covered prescription drug costs. When costs go above $7,400 in 2023 ($7,050 in 2022), you pass through the donut hole and owe only 5% of the cost of drugs.
A 2021 change to Medicare allowed older adults to choose a Part D plan that offers insulin at no more than $35 per month. This change will also apply to insulin used in traditional insulin pumps as of July 1, 2023.
Example of Medicare Part D
Daniel is a veteran considering whether to opt into Medicare Part D. As an older American, Daniel is already covered by Medicare 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 not to opt into 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 into Part D.
Do I Have to Sign up for Medicare Part D?
No. Medicare Part D is an optional form of health care coverage which helps Americans have more affordable access to prescription drugs. However, if you do want to sign up, it is important that you sign up during the initial enrollment period, otherwise you might face permanent late penalties.
Does Medicare Part D Cover Every Prescription Drug?
Every Part D plan covers a different group of drugs, called a formulary. The drug lists might change with time, but your plan will always give you notification of these changes. When deciding on a plan, it is important to look through the formulary and determine which plan offers the best coverage for your needs. If a drug is unavailable to you, and your health care provider is adamant that you need it, it is possible to file for an exemption.
Why Do I Need Medicare Part D?
Even if you are in good health now, it is possible that in the future, prescription drugs may become a necessary part of your daily life. In this case, having Medicare Part D can save you hundreds, if not thousands, of dollars in out-of-pocket prescription drug costs.