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How Does Medicare Part D Work?

Just the Essentials

    • Original Medicare does not cover prescription medications.
  • A Medicare Part D plan can reduce the cost of, or even completely cover the price of your medications, and are available as standalone products or as part of a Medicare Advantage plan.

  • Recent reforms have closed the Medicare Part D ‘donut hole’ for most people, making medications more affordable for most beneficiaries.

How are you paying for your prescriptions?

You might be surprised to learn that, by default, Medicare doesn’t cover prescription medications. For that, you’ll need the added coverage of Medicare Part D, but how exactly does Medicare Part D work, and more importantly, how much does it cost? Here’s how to understand one of the more misunderstood parts of Medicare.


Doctor prescribing medications.

Original Medicare, parts A and B, will only pay for medications administered as part of a hospital stay, or otherwise administered by a medical professional or durable medical equipment: injections, insulin pumps, etc. Unfortunately, this type of medication isn’t particularly common: self-administered drugs, which make up the vast majority of prescribed medication, aren’t covered by default. 

Medicare Part D plans, which cover prescription drugs, are a relatively recent phenomenon, having only been available since 2006. These plans, offered through private insurance providers in a manner similar to Medicare Advantage, cover the majority of prescription drug prices. While commonly available as part of a Medicare Advantage plan, Medicare Part D plans are also available independently, allowing them to be combined with Original Medicare and Medigap insurance plans depending on your specific needs. 

Even if you don’t plan on getting a Medicare Advantage or Medigap plan, it is highly recommended that you get a Medicare Part D plan to avoid a late enrollment penalty.

How does Medicare Part D work?

Assorted pills.

For most people, not much thought needs to be put into a Medicare Part D plan: you head to the pharmacy, pick up your prescription, and cover any copays your plan has. Like all prescription drug coverage, your plan will have a formulary, a list of drugs the plan will cover. Most plans will cover generic drugs, but may have higher fees for more specialized medication. 

Your plan may use a ‘step therapy’ protocol when prescribing drugs, attempting to find the minimum effective dose of the least expensive medication for your condition. It is possible to bypass step therapy if you have a pre-existing prescription, or are on a special needs plan (SNP) for a chronic condition. 

Drugs that are not in your formulary are not covered, though it is possible to file for a special exception. Your doctor can help guide you through the process of filing an appeal. Non-medically necessary drugs, such as erectile dysfunction medication, are not covered. 

Because your doctor must explain what condition is being treated on the prescription, any attempt to circumvent this by prescribing a medication for a non-existent medical condition (such as prescribing Viagra for blood pressure) is considered fraud.  Certain medications prescribed for health conditions that are not FDA approved, like medical cannabis, are also not covered.


What does Medicare Part D cost?

Pills on 100 dollar bills.

Medicare Part D costs vary based on the current year and your income.  The typical Medicare Part D costs in 2023 are $32.74 for premiums, and a maximum deductible of about $505. Low income individuals can apply for Extra Help, which can reduce the costs you pay for medication. If you receive Part D coverage as part of a Medicare Advantage plan, prescription benefits are included as part of your monthly premium.

You may have heard of the Medicare Part D coverage gap, or ‘donut hole’. This refers to a potential increase in prescription drug costs that occurs after meeting your deductible. Many Medicare Part D plans have a coverage limit: after spending a certain amount on medication, the burden of cost shifts from the insurance provider back to the consumer. Recent reforms have made it so this coverage gap is much less severe than it was prior to 2020, with a maximum burden of 25% of the drug’s cost falling upon your shoulders. Many plans also offer additional coverage and discounts during this period, so most people do not enter the coverage gap at all. If you qualify for Extra Help, you are also exempt from the coverage gap.

Eventually, you will enter the catastrophic phase of your plan’s coverage, which will move the burden of cost back onto the insurance provider. Starting in 2024, all cost-sharing burdens during this period will be waived, though you will still need to pay your premium.

Insulin is a special exception to Medicare Part D rules: you do not need to pay a deductible toward insulin coverage, and prices are capped at $35 for a month’s supply. 


What about over-the-counter medications?

Woman browsing for medications

OTC medications are not covered under Medicare Part D, but may be covered by select Medicare Advantage plans. Medical supplies needed to administer medications, like syringes, are covered under Medicare in many cases. Check with your plan for more information.

If you are looking for prescription drug coverage, our friendly, licensed agents can help. Enter your zip code into our free comparison tool, or call us at (800) 950-0608 to begin your search today!

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