Medicare Part D is the part of Medicare that helps cover the cost of prescribed medications. Since Original Medicare does not cover prescription drugs, you will have to enroll in a Medicare Part D plan to receive benefits.
Each Medicare Part D plan has different benefits, costs, and availability. Thus, there is not a Medicare Part D plan that fits everyone’s needs. To find the right Medicare Part D plan, it is important to review your prescriptions, dosages, and how each plan covers them.
What is Medicare Part D?
Medicare Part D went into effect January 1, 2006, as a part of the Medicare Modernization Act. Prior to 2006, those on Medicare were responsible for covering the cost of prescription drugs on their own.
Medicare does not directly administer Medicare Part D plans. Instead, private insurance companies provide these benefits following Medicare guidelines.
Each year, guidelines, and plan availability change. These changes make it important to review your plan annually to ensure you are still receiving the best benefits possible.
Medicare Part D Costs
There are several Medicare Part D plans available to beneficiaries. So, unlike Medicare Part A and Medicare Part B, it is difficult to know exactly how much you will spend out of pocket each year.
In 2023, the average cost of a Medicare Part D plan is $31.50, and the maximum deductible is $505. However, premiums and deductible costs vary based on the plan in which you enroll.
In some cases, if your annual income exceeds a predetermined threshold, you could see a surcharge on top of your monthly Medicare Part D premium. This Income-Related Monthly Adjustment Amount can impact your Medicare Part D and Medicare Part B premiums each month.
Conversely, if your annual income is below a certain threshold, there are programs to provide financial assistance with your Medicare Part D costs. Extra Help is a low-income subsidy provided by Social Security to help cover these costs.
Medicare Part D Coverage Phases
Medicare Part D plan costs change throughout the year as you climb through coverage phases. Every Medicare Part D plan offers the same coverage phases, so if you have a Medicare Part D plan it is essential to understand how these coverage phases work.
Those with few, low-tier drugs might not need to worry about the coverage phases as much as those with higher-cost medications.
The four Medicare Part D coverage phases are:
- Deductible Phase
- Initial Coverage Phase
- Coverage Gap Phase (Donut Hole)
- Catastrophic Coverage Phase
During the deductible phase, you are responsible for the full cost of drugs until you meet the plan’s deductible. Once you reach the deductible, you enter the second phase.
The length of the initial coverage phase depends on the cost of your prescription drugs and your plan’s benefits. In 2023, the initial coverage phase lasts until the total drug cost between you and your plan reaches $4,660. Once you meet this limit, you move on to the third coverage phase.
During the coverage gap phase, also known as the donut hole, you are responsible for 25% of the retail cost for your prescription drugs. This coverage phase lasts until your true-out-of-pocket costs equal $7,400. Once you meet this amount, you move on to the final coverage phase.
When you exceed your true-out-of-pocket limit, you are responsible for the greater amount of 5% or $4.15 for generic drugs and $10.35 for brand-name drugs. You will stay in the catastrophic coverage phase until your plan benefits reset on January 1.
How to Enroll in Medicare Part D
Enrolling in a Medicare Part D plan can seem difficult. However, with the right knowledge, signing up for the right plan can be easier than you imagine. Working with an agent and researching plan benefits online is key to finding the best plan for your needs.
To be eligible for Medicare Part D, you must enroll in Medicare Part A and Medicare Part B. There are specific time periods when you are able to enroll in Medicare Part D. This includes the Initial Enrollment Period and the Annual Enrollment Period. In certain cases, you may even be eligible for a Special Enrollment Period which will allow you to enroll in a Medicare Part D plan outside of the typical enrollment periods.
Keep in mind, if you do not enroll during one of the specified enrollment periods, you could face the Medicare Part D late enrollment penalty when you eventually enroll. Additionally, the penalty does not go away as long as you have Medicare Part D coverage.
