Medicare Part D – Drug Coverage

Part D is Medicare’s program to cover prescription drugs through plans offered by private insurance companies. Of all the parts of Medicare (A, B, C, and D), this is the part that causes the most confusion. Let’s breakdown exactly how Medicare Part D works for Medicare beneficiaries.

How Part D Coverage Works

There are 2 different ways to get your Medicare Part D coverage:

#1 ) Stand-alone Prescription Drug Plans (PDP)

A stand-alone drug plan is typically chosen to go along with a Medicare Supplement plan (which cover medical care, but NOT prescription drugs). Your PDP will have its own card that you show at the pharmacy. Typically you’ll pay a monthly premium to have the insurance, and pay a co-pay for each medication. Your copay will vary based on the plan you pick, and the tier of the prescription you are taking on the plans formulary.

#2 ) Medicare Advantage Prescription Drug Plans (MAPD)

Prescription drug coverage can also be built into Medicare Advantage plans. You’ll continue to have co-pays just like you would if you had a stand-alone plan, but often times you can find a MAPD that doesn’t have a premium. Your copay for medications will vary based on the plan you pick, and the tier of the prescription you are taking on the plans formulary. Not all Medicare Advantage plans have Part D coverage, so you must make sure the plan you pick will cover your needs!

*Important* Part D Late Enrollment Penalties (LEP)

  • Once you turn 65 you must maintain creditable prescription drug coverage or the government will charge you a lifetime penalty for not having the coverage. If you work past age 65, make sure your employer health insurance is “credible” in the eyes of Medicare.

  • These Late Enrollment Penalties (LEP) are an additional charge for your drug plan if you ever decide to enroll in Part D in the future. These penalties can be as high as $60-70 per month for life, so it’s important to get this right.

  • If you worked past age 65, as long as you were covered by a credible employer plan you will avoid this penalty. But you will have to prove you had coverage when you do apply for Medicare.

Part D Coverage Levels

Every Part D plan has 3 levels of coverage. You move from one level to another based on your drug expenses for the year.

  1. Deductible – You pay the full amount of your medications until you reach the plan’s yearly deductible.

    • For 2026, the maximum deductible is set at $615. Depending on the plan, your deductible may be less and may not apply to generic medications.

  2. Initial Coverage – You pay a co-pay or co-insurance for your medication depending on which “tier” it is.

    • Preferred Generics (Tier 1) cost less than Brand Name (Tier 4), which cost less than Specialty Drugs (Tier 5). 

  3. Catastrophic Coverage – In 2026, once you’ve paid $2,100 out-of-pocket on your Prescription Drugs for the year, you switch to the Catastrophic Coverage phase where you no longer have any cost-sharing for the rest of the year.

    • You’ll remain in this coverage level until January 1st when you reset back into the deductible.

Formularies

To make things more confusing, each plan you can pick has a different list of the prescriptions it covers called the formulary. Plans do not have to cover all medications, and one company might cover X prescription while another may not. Even worse, THE FORMULARY CAN CHANGE FROM YEAR TO YEAR. This means a drug that was covered under your plan this year could not be covered the next year.

In order to ensure clients are getting the right plan for their needs, we have special tools that allow us to compare all the available Part D drug plan options to ensure your medications will be covered, and covered for the lowest out-of-pocket cost to you.

Costs for Medicare Part D

The national average for a Part D drug plan is $36.78, with some available at much lower costs and others much higher.

Picking the right drug plan is extremely dependent on the list of medications that you take. The highest price plan per month might have very low co-pays for your medications, while the cheapest plan might not cover them at all. 

If you don’t take any medications, you’re likely better off with one of the cheaper plans. Consider your total out-of-pocket costs when selecting a Part D plan, not just the monthly premiums. 

When to Enroll in Part D

When you’re just starting Medicare, you’ll have an initial enrollment window for Part D, just like you do for the other parts of Medicare. You might delay enrolling during this initial window if you work past age 65, and if your employer offers credible coverage. When you are ready to retire we recommend applying for Medicare 2-3 months BEFORE you retire.

After that you’ll be able to switch drug plans every year during the Annual Election Period from October 15 – December 7. If you missed that window you may not be able to change your coverage until the following year. There are a few special cases though, where people can change mid-year.

FAQs

Is Medicare Part D Required?

  • NO, you do not have to have Medicare Part D. HOWEVER, because medications can be very expensive, and because of the penalties we recommend getting Part D Coverage.

How Do You Calculate the Part D Penalty?

  • The penalty you pay is based on how long you went without coverage. It’s calculated by multiplying 1% of the average national cost of a Part D plan, times the number of months you went without coverage. One year without coverage might only be a $5/mo penalty. 15 years without coverage might be around $70/mo penalty for life.

What is the Donut Hole?

  • The donut hole or coverage gap has been eliminated from Medicare Part D drug plans as of 2025. In the past, the donut hole was a part of all Part D drug plans where typically your out-of-pocket costs would skyrocket. It was always a pain for people on a fixed income. Good riddance.

What is the most popular Medicare Part D plan?

  • The most popular Part D drug plan changes each year and is different based on your location. We typically see the cheapest plans will be popular each year for those who take little or no prescriptions. The largest Part D Drug carrier by number of members is Centene/Wellcare, followed by CVS/Aetna, UnitedHealthcare, Cigna, and Humana.

We’d love to Help

We know this can be confusing and plans change every year. We’d love to help! Schedule an appointment