Medicare Prescription Drugs Plans (Part D)

Prescription drug benefit (Part D) is the part of Medicare that provides outpatient drug coverage.

Part D is provided only through private insurance companies that have contracts with the federal government—it is never provided directly by the government.

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Prescription Drugs Part D

If you want to get Part D coverage, you have to choose and enroll in a private prescription drug plan (PDP) or a Medicare Advantage Plan with drug coverage (MAPD)

Enrollment is optional (though recommended to avoid incurring future penalties) and only allowed during approved enrollment periods.

Typically, you should sign up for Part D when you first become eligible to enroll in Medicare. Whether you should sign up for a Medicare Part D plan depends on your circumstances. You may have creditable drug coverage from employer or retiree insurance. If so, you don’t need to enroll in a PDP until you lose this coverage.

Some people who are enrolled in certain low-income assistance programs may be automatically enrolled in a drug plan and receive additional financial assistance paying for their medicines.

What are the enrollment requirements


You Must live in the Part D plan’s service area

When to Enroll?

If you need to enroll in Medicare Part D for the first time, typically you will do so either during your Initial Enrollment Period (IEP), the Fall Open Enrollment Period, or if you qualify for a Special Enrollment Period (SEP).

Your Part D IEP is usually the same as your Medicare IEP: the seven-month period that includes the three months before, the month of, and the three months following your 65th birthday. For example, let’s say you turn 65 in May. Your IEP runs from February 1 to August 31.

The date when your Part D coverage begins depends on when you sign up:

  • Enrolling during the first three months of the IEP means coverage begins the first day of the fourth month.
  • Enrolling during the fourth month of the IEP or any of the three months afterwards means coverage begins the month following the month of enrollment.

What you need to consider?

You should enroll in Part D as soon as you are eligible to avoid a potential late enrollment penalty (LEP) and gaps in coverage. If you do not enroll in Part D during your IEP, you can also enroll in or make changes to Part D coverage during the Fall Open Enrollment Period—but you may have a late enrollment penalty if you are using Fall Open Enrollment to enroll in Part D for the first time.

Under certain circumstances, you may have an SEP to enroll in a Part D plan, including if you:

  • Had creditable drug coverage
  • Have job-based drug coverage through your or your spouse’s employment
  • Are eligible for Extra Help

Note: If you are enrolled in Medicare because of a disability and currently pay a premium penalty, once you turn 65 you will no longer have to pay the penalty. This is because you will qualify for a new Part D IEP when you turn 65.

What Medicare Part D drug plans cover

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.

Plans include both brand-name prescription drugs and generic drug coverage. The formulary includes at least 2 drugs in the most commonly prescribed categories and classes.

Plans include both brand-name prescription drugs and generic drug coverage. The formulary includes at least 2 drugs in the most commonly prescribed categories and classes.

Here’s an example of a Medicare drug plan’s tiers (your plan’s tiers may be different):

  • Tier 1 – most generic prescription drugs
  • Tier 2 –  preferred, brand-name prescription drugs
  • Tier 3 –  non-preferred, brand-name prescription drugs
  • Specialty tier –  very high cost prescription drugs

What you will Pay in 2021?

Every plan has a monthly plan premium that you will have to pay. The following deductibles, copayments & Coinsurance might be different with the plan you choose.

Stage 1

If your plan has a Deductible, that is the amount which you pay yourself before your plan begins to share the cost. In 2021 the maximum deductible a plan can have is $445
Stage 2

Tier 1 - $0
Tier 2 - $0
Tier 3 - $10
Tier 4 - $40
Tier 5 - 33%
You will pay these amount until you and your plan together have spend $4,130.
Stage 3

Once you reach Stage 3, you will pay 25% of your Brand and Generic Drugs until your and your insurance companies out of pocket comes to $6,550.
Stage 4

Once you and the plan together have spent $6,550 in drug costs, you will start paying 5% of the cost of your drugs until the end of the year.


Most frequent questions and answers

True out-of-pocket (TrOOP) costs are the expenses that count toward a person’s Medicare drug plan out-of-pocket threshold.  TrOOP costs determine when a person’s catastrophic coverage portion of their Medicare Part D prescription drug plan will begin

  • Annual Deductible
  • Co-payments or Coinsurance
  • Any payments a person makes during their plan’s coverage gap.  This includes what you pay and what others pay on your behalf.
  • Any payments for drugs made by any of the following programs or organizations on your behalf:
    • Any money a person enrolled in the Medicare drug plan uses from their Medical Savings Account (MSA), Health Savings Account (HSA), or Flexible Spending Account (FSA).
    • Payments made by family members or friends
    • “Extra-Help” from Medicare (Low-Income Subsidy LIS)
    • Indian Health Services (IHS)
    • AIDS Drug Assistance Programs (ASAPs)
    • Most Charities (unless they’re established, run, or controlled by the person’s current or former employer or union or by a drug manufacturer’s Patient Assistance Program (PAP) operating outside Part D)
    • Qualified State Pharmaceutical Assistance Programs (SPAPs)
    • The brand-name drug manufacturers providing discounts under the Medicare coverage gap discount program (see how the discount levels have for each year — up to 2020, after which all formulary drugs will receive a 75% discount and the Donut Hole is considered “closed”).
  • The cost-sharing portion paid by a Medicare drug plan (for example, for a $100 medication, you pay $20 and your plan pays $80, only the $20 counts toward your TrOOP),

  • Your monthly Medicare plan premiums,

  • Drugs purchased outside the United States and its territories (for instance, drugs purchased in Mexico),

  • Drugs not covered on the Medicare Part D plan formulary or drug list,

  • Drugs covered by the plan that are excluded by Medicare law – for instance, drugs for hair growth that are covered by your plan as a supplemental or bonus drug do not count toward TrOOP (see Excluded Medicare Part Drugs),

  • Over-the-counter drugs or vitamins (even if they are required by your Medicare Part D plan as part of Step Therapy),

  • Finally, CMS notes: Payments don’t count toward a person’s TrOOP costs if they’re made by (or reimbursed to the person enrolled in a Medicare drug plan by) any of these:

    • Group health plans such as the Federal Employees Health Benefit Program (FEHBP) or employer or union retiree coverage

    • Government-funded health programs such as Medicaid, TRICARE, Workers’ Compensation, the Department of Veterans Affairs (VA), Federally Qualified Health Centers (FQHCs), Rural Health Clinics (RHCs), the Children’s Health Insurance Program (CHIP), and black lung benefits

    • Other third-party groups with a legal obligation to pay for the person’s drug costs

    • Patient Assistance Programs (PAPs) operating outside the Part D benefit

    • Other types of insurance

      Please note:  You must let your Medicare drug plan know if you are receiving coverage from one or more of the third parties listed above that pay a part of your out-of-pocket costs for prescription drugs.

In 2020, the Coverage Gap will be considered “closed” when both generic and brand-name drugs will cost Medicare Part D plan members 25% of the retail drug price until reaching Catastrophic Coverage.

Prescription drug coverage is considered credible if its actuarial value equals or exceeds the actuarial value of standard Medicare Part D prescription drug coverage. Your provider will be able to tell you if they are considered credible coverage. 

Do you have Questions?

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Daniel Vujinovic
Daniel - Senior Agent

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