Medicare Prescription Drug plans, also known as Medicare Part D, help cover the costs associated with prescription medications. From making sure your prescriptions are covered to finding the best price available, here are a few tips to help you compare and choose a Medicare Part D plan.
Understanding What a Medicare Part D Plan Is
Medicare Prescription drug plans help cover the cost of prescription drugs, both brand-name and generic drugs, giving you broader healthcare coverage and potentially saving you money. Original Medicare doesn’t typically cover all prescription medication costs, so a Medicare Part D plan can be purchased as a stand-alone plan to supplement Original Medicare or to accompany a Medicare Supplement plan. Some Medicare Advantage plans may include prescription drug coverage; these are known as Medicare Advantage Prescription Drug (MAPD) plans.
Key Changes to Medicare Part D in 2025
The Inflation Reduction Act of 2022 introduced significant changes to Medicare Part D beginning in 2025. These changes, which apply to both stand-alone Part D plans and Medicare Advantage plans with drug coverage, are designed to protect people with high prescription costs.
Out-of-Pocket Spending Cap: For the first time, Medicare Part D beneficiaries have a fixed annual out-of-pocket spending cap. As of 2025, once your total out-of-pocket costs for covered drugs reach $2,000, beneficiaries pay $0 for all covered prescriptions for the rest of the year. This cap includes any deductibles, copayments, and coinsurance you pay, providing a significant financial safeguard for people with expensive medications.
Elimination of the "Donut Hole": The new benefit design effectively eliminates the "donut hole" or coverage gap phase, which has historically been a confusing and costly part of Medicare Part D. Previously, beneficiaries would enter a phase where they had to pay a larger share of their drug costs after their initial coverage limit was reached. With the 2025 changes, this phase is gone, and the new structure is simplified: once you meet your deductible, you enter the initial coverage phase, which continues until you hit the $2,000 out-of-pocket cap.
Enhanced Catastrophic Coverage: With the $2,000 spending cap, the catastrophic coverage phase of Medicare Part D is significantly enhanced. Once you reach the cap, you move into the catastrophic phase, where you will pay no cost-sharing for the remainder of the year. This means Medicare will cover 100% of your drug costs, providing a robust layer of protection and eliminating the previous 5% coinsurance that beneficiaries were responsible for in this phase.
How to Compare Medicare Part D Plans for Your Needs
Medicare drug plans have a list, also known as a formulary, of covered prescription drugs. Plans may include both brand-name and generic prescription drugs, but plans can choose which drugs are covered and which ones aren’t. Generally, plans include at least two drugs in the most commonly prescribed categories and classes. You’ll want to make sure your prescriptions are covered before you sign up for a plan.
Understanding the Tiered System of Drug Coverage
Medicare prescription drug plans (Part D) organize their list of covered drugs, known as a formulary, into different cost-sharing levels called tiers. Each tier corresponds to a specific copay or coinsurance amount, and generally, the lower the tier, the less you will pay for your medication. For instance, generic drugs are typically placed in the lowest tiers (Tier 1 or Tier 2) with the smallest copays, while preferred brand-name drugs are in a mid-level tier with a higher copay. Non-preferred brand-name drugs are often in a higher tier with a greater copay or coinsurance, and very expensive specialty drugs are usually in the highest tier, requiring you to pay a percentage of the cost (coinsurance) rather than a fixed copay.
Checking Your Prescriptions Against a Plan's Formulary
To effectively use a plan's formulary, you should begin by creating a comprehensive list of all the medications you take. This includes the exact drug name, the dosage, and the frequency. Next, you can use the official Medicare.gov Plan Finder tool, which allows you to enter your medications and see which plans cover them, along with an estimated cost for the year.
Additionally, most insurance company websites have a searchable formulary tool. When using these tools, don't just check if your drug is on the list, but also pay attention to what tier it's in, as this directly affects your copay. It is also important to note if the plan has any restrictions on your medications, such as a quantity limit or a requirement for prior authorization, as these can impact how you get your prescription filled. By taking these steps, you can ensure the plan you choose provides the coverage you need at a cost you can manage.
How Pharmacy Networks and Mail-Order Options Affect Your Cost
How a Medicare Part D plan's pharmacy network and mail-order options affect your costs is a key factor to consider. Many plans organize their network of pharmacies into two main tiers: preferred and standard (or non-preferred). You'll typically pay less for your medications—often with a lower copay or coinsurance—when you use a preferred network pharmacy. These pharmacies have agreed to offer a discount to plan members in exchange for increased business. While you can still use a standard network pharmacy, your out-of-pocket costs will be higher. In addition, many plans offer the convenience of mail-order pharmacies for long-term medications you take regularly. Using these services can often lead to further cost savings, with some plans offering a lower copay for a 90-day supply of your medication delivered directly to your home. Always check the plan's details to confirm which pharmacies are in your network and what mail-order options are available to get the best value.
Determining Your Medicare Part D Costs
When choosing prescription drug coverage, you’ll have to decide whether to enroll in a Medicare Advantage plan that includes prescription drug coverage or a stand-alone prescription drug plan that works with Original Medicare.
When evaluating and comparing Medicare prescription drug plans, you’ll want to consider the following:
Premiums: A premium is the fixed monthly fee you pay to the private insurance company for your Part D coverage. This amount can vary widely depending on the plan you choose and the private insurer offering it. While some plans may have a low or even zero premium, they might have higher deductibles or copays. The premium you pay for your plan is separate from the standard Part B premium you may also pay.
Deductibles: A deductible is the amount you must pay for your prescription drugs each year before your plan begins to cover its share. Once you meet the deductible, you enter the Initial Coverage Phase. The deductible amount can be different for each plan, with a maximum of $590 in 2025. Some plans offer a $0 deductible, which means their coverage starts on the very first day you fill a prescription, though these plans often come with a higher monthly premium.
Copayments and Coinsurance: After you meet your deductible, you'll be responsible for a portion of your drug costs through either a copayment or coinsurance, which are determined by the plan's formulary (drug list). The copayment or copay is a fixed dollar amount you pay for a prescription, such as a $10 copay for a generic drug. The coinsurance is a percentage of the drug's cost you pay, for example, 25% for a brand-name drug.
Catastrophic Coverage Phase: A major change for Medicare Part D in 2025 was the elimination of cost-sharing in the catastrophic coverage phase, offering significant financial protection. Once your total out-of-pocket spending for covered drugs reaches $2,000, you will enter this phase. At this point, you will pay $0 for all covered medications for the rest of the calendar year, as the plan will cover 100% of the cost. This out-of-pocket cap provides a predictable limit on what you'll spend on prescriptions, making it much easier to budget for high drug costs.
The Medicare Part D Enrollment Process
Navigating the enrollment periods for Medicare Part D is crucial to securing coverage and avoiding potential penalties. There are specific times when you can sign up for a plan, each with its own rules.
Initial Enrollment Period: Your first chance to enroll in a Medicare Part D plan is during your Initial Enrollment Period (IEP). This is a seven-month window that begins three months before the month you turn 65, includes your birthday month, and ends three months after. For example, if you turn 65 in May, your IEP runs from February 1st to August 31st. This is the period when you can sign up for a Part D plan without facing any late enrollment penalties.
Annual Election Period: If you miss your IEP, or if you already have a plan and want to make a change, the Annual Election Period (AEP) is your opportunity. This period runs every year from October 15 to December 7. During this time, you can enroll in a Part D plan for the first time, switch from one Part D plan to another, or drop your existing coverage. Any changes you make during the AEP will become effective on January 1 of the following year.
Late Enrollment Penalties: It is important to sign up for Medicare Part D when you are first eligible to avoid a late enrollment penalty. If you go 63 or more days in a row without creditable prescription drug coverage (that is, coverage as good as Medicare's) after your IEP ends, you may have to pay a permanent late enrollment penalty. The penalty is calculated by multiplying 1% of the national base beneficiary premium by the number of full, uncovered months you were without creditable coverage. This penalty is added to your monthly premium for as long as you have a Medicare drug plan, even if you switch plans, making it a permanent increase in your costs.
Finding a Medicare Part D Plan That Works for You
Working with a licensed insurance agent can be an invaluable way to navigate the complexities of Medicare Part D. They can help you sift through the numerous plans and their intricate details, simplifying confusing terminology and explaining the differences between premiums, deductibles, and copays. An agent should take the time to understand your specific healthcare needs, including your list of medications, preferred pharmacies, and financial situation. They can then use their expertise to compare plans from multiple insurance companies to find one that best fits your unique circumstances.
Additional Resources for Medicare Plan Information
The following resources can help you with questions about Medicare Part D.
1-800-MEDICARE (1-800-633-4227) | TTY: 1-877-486-2048
