Medicare Part D

What Is Medicare Part D?

Medicare Part D is a prescription drug benefit program that is offered as part of the broader Medicare federal health insurance program 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.

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 that as of 2019 insured an estimated 61.2 million individuals. While Medicare extends to a wide variety of medical treatments, Part D is focused specifically on making drug prices more affordable for Americans 65 years and older. Although it was enacted into law in 2003, Part D began providing coverage on Jan. 1, 2006.

People already covered by Medicare generally can opt in to Medicare Part D. If you do, you will be 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. For this reason, it's up to you to choose whether subscribing to Medicare Part D makes economic sense, given your health needs and financial circumstances.

Generally, you opt to enroll in Part D when first becoming 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 in to 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.

Part D coverage includes a monthly premium that will vary depending on the plan you choose and the drugs you use. In 2021, the average basic Part D premium is about $30.50 per month.

Special Considerations

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." This gap kicks in after you and your insurer have spent a certain amount in combined costs.

Under the Affordable Care Act (ACA), the donut hole has been closing each year, but it’s not completely gone yet. At a certain level — $4,130 in 2021 — you enter the notorious donut hole in coverage that requires you to pay up to 25% of covered prescription drug costs. In 2021, when costs go above $6,550, you pass through the donut hole and owe only 5% of the cost of drugs.

Changes to Medicare for 2021 include allowing older adults to choose a Part D plan that offers insulin at no more than $35 per month.

Example of Medicare Part D

Daniel is a veteran who is considering whether to opt in to 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 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 to Part D.