Medicare Prescription Drug Plan (Part D) Coverage

Medicare Part D Coverage Overview

Similar to Medicare Advantage and Medicare Supplement plans, Medicare Part D coverage is available through private insurance companies that are contracted by Medicare. That means that the costs and coverage may differ between Medicare plans, insurance companies, and location. 

When you have Medicare, you need to make sure you have a prescription drug plan. Not only will that help you if and when you need to have prescriptions covered, but it’s required by law. There are two ways you can make sure you are compliant with the law: the first is by having what is known as “creditable coverage” and the second is by enrolling in a Medicare plan that offers prescription drug coverage. 

The Centers for Medicare & Medicaid Services (CMS) defines creditable coverage as coverage which is equal to or better than what you may get from Medicare. For example, if you have prescription drug coverage from your employer, you should confirm with them as to whether the coverage meets CMS’ standard for creditable coverage on prescription medicines.

Now, if you’re looking for a prescription drug plan from Medicare, you have two ways to go about securing it, and it really depends on whether you’re planning on selecting a Medicare Advantage Plan or not. If you are planning on selecting Medicare Advantage, you’ll find many of these plans have the prescription drug coverage included. Alternatively, if you’re considering a Medicare Supplement (Medigap) or relying solely on Traditional Medicare for your medical coverage, you’ll need to explore stand-alone prescription drug plans (sometimes called Part D plans).

How Do I Know If I am Eligible for Medicare Part D? 

You are eligible for Medicare Part D if you

• Are enrolled in Medicare Part A and/or Part B, and
• Live in the service area of a Medicare plan that includes prescription drug coverage.

What Are My Medicare Part D Plan Options?

When looking at Medicare plans that offer prescription drug, here are some tips to note:

• If you select a stand alone prescription drug (Part D) plan, you’ll have a premium associated with it; however, if you select a Medicare Advantage Plan, you will not have a separate premium for your prescription drug plan.
• Beyond your premium, you should make sure you understand what, if any deductible you may have.
• Your co-pays will vary depending on the medications you’re taking, for example use of generic versions versus branded medicines. Increasingly, your copays may also vary depending on the pharmacy you choose to use. Many prescription drug plans have introduced lower copays for medicines dispensed at preferred pharmacies and/or when purchased through mail service.
• All Medicare prescription drug plans and Medicare Advantage plans are rated by CMS and given a star rating of one through five, corresponding to their performance on several important measures of quality and customer satisfaction.
• And finally, your Medicare prescription drug coverage will be updated each year and may change; you have the ability to switch plans at that time should your needs or preferences change.

What Is a Formulary?

Medicare Part D refers to prescription drug coverage, which is provided by private insurers. Each plan that offers prescription drug coverage through Medicare Part D must give at least a standard level of coverage set by Medicare. Plans can vary the list of prescription drugs they cover (called a formulary) and how they place drugs into different “tiers” on their formularies. There are four coverage phases of Medicare Part D coverage.

Phase 1 Initial Deductible

The 2024 standard deductible is up to $545. This means that you are responsible for paying 100% of Medicare covered drugs until you meet the deductible amount. It is important to note that some plans do not have a deductible.

What doesn’t count toward my initial deductible?

• Your monthly Part D premium
• Pharmacy dispensing fee
• Drugs that are not covered by your Medicare plan

Phase 2 Initial Coverage Period

After you have met your deductible the plan will begin cost sharing. The plan will pay up to 75% of covered drugs. You will be responsible for paying 25% of costs either in the form of a copayment or coinsurance. You will be in this phase until your out-of-pocket costs (including your deductible) have accumulated up to $5,030 in 2024.

Phase 3 Coverage Gap

After you have accumulated up to $5,030 you have moved into phase 3, coverage gap. This phase was previously known as the “Donut Hole.” However, in 2020 the donut hole closed for all drugs. Now, you will be responsible for no more than 25% for both covered generic drugs and brand-name drugs.

What counts towards the coverage gap?

• The annual deductible
• Your coinsurance and copayments
• The discount you get on brand-name drugs in the coverage gap
• The out-of-pocket costs you accumulate in the coverage gap

Phase 4 Catastrophic Coverage

Once your out-of-pocket spending reaches $8,000, you will begin to pay reduced copays and coinsurance as the plan continues to cost share. You will remain in this phase until the plan resets on January 1.

What counts toward catastrophic coverage?

• Your deductible
• What you paid during the initial coverage period
• Almost the full cost of brand-name drugs (including the manufacturer’s discount) purchased during the coverage gap
• Amounts paid by others, including family members, most charities, and other persons on your behalf
• Amounts paid by State Pharmaceutical Assistance Programs (SPAPs), AIDS Drug Assistance Programs (ADAPs), and the Indian Health Service (IHS)